Why I’m still bullish on this dividend-growing infrastructure play

I’ve accumulated more than $2,000 of cash in my model Yield Hog Dividend Portfolio, and today I’m putting some of that money to work.

With the U.S. tariff threat still looming and a Canadian federal election expected as early as the spring, this might seem like a risky time to be investing. But there is a method in my madness: If I wait until things settle down – and let’s hope they do very soon – stock prices could well be higher by then.

As Warren Buffett famously said, it pays “to be fearful when others are greedy and to be greedy only when others are fearful.”

With that in mind, I’m adding 30 units of Brookfield Infrastructure Partners LP (BIP.UN), bringing my total to 250 units.

I’ve long been a fan of Brookfield Infrastructure for several reasons.

As a global infrastructure giant, it owns a diversified portfolio of assets that are essential to the economy, including utilities, pipelines, data centres, toll roads, ports and telecom towers. These long-lived assets have high barriers to entry, which creates a wide economic “moat.” They also throw off growing cash flows that, in a majority of cases, are indexed to inflation.

I like it when companies give me money. I like it even more when the amount increases every year – an area in which Brookfield Infrastructure excels.

Thanks to the predictable nature of its businesses, the Bermuda-based limited partnership has raised its distribution to unitholders for 16 consecutive years. The latest increase was announced along with fourth-quarter results on Jan. 30, when the partnership and its sister corporation, Brookfield Infrastructure Corp. (BIPC), hiked their quarterly payouts by 6 per cent to 43 US cents per unit or share, respectively.

Including the recent increase, the partnership units currently yield about 5.1 per cent, while the corporation’s shares, which trade at a higher price, yield about 4.1 per cent.

(The partnership and corporation pay out the same quarterly amount. However, the partnership’s distributions typically include foreign dividend and interest income, Canadian dividend and interest income, return of capital and capital gains, whereas the corporation pays dividends that are eligible for the Canadian dividend tax credit. That makes the latter a good choice for non-registered accounts.)

There are more distribution increases to come, analysts say.

“We believe BIP is set up as an attractive investment opportunity with a strong organic project backlog, accelerating capital recycling activity and an attractive distribution growth profile,” Robert Catellier, an analyst with CIBC Capital Markets, said in a research note.

Mr. Catellier rates the units “outperformer” and is one of nine analysts with a “buy” or equivalent rating. There are three hold recommendations and no sells, and the average price target for the U.S.-listed units is US$40, according to Refinitiv data. On Friday, the units closed at on the New York Stock Exchange and on the Toronto Stock Exchange.

Distribution increases need to be supported by growing cash flow to be sustainable, and Brookfield Infrastructure is delivering in that regard. For the year ended Dec. 31, funds from operations (FFO) – a cash flow measure – rose by about 8 per cent to US$2.47-billion or US$3.12 per unit, driven by inflation-linked price increases, growing business volumes and the commissioning of more than US$1-billion of new capital projects.

Cash flow is expected to continue growing in the years ahead, with FFO per unit rising by a projected 8.7 per cent in 2025 and a further 9.4 per cent in 2026, according to analysts’ estimates.

“Following a relatively light 2024 for capital deployment, the new investment pipeline has been rebuilding and is the deepest in several years,” Devin Dodge, an analyst with BMO Capital Markets, said in a note to clients.

Investments in digitalization, such as data infrastructure and midstream energy assets, will be key areas of focus, with capital recycling – selling assets to fund higher-return investments – playing a growing role in Brookfield Infrastructure’s growth, Mr. Dodge said.

There is almost certainly more geopolitical and economic turmoil ahead, but thanks to Brookfield Infrastructure’s growing portfolio of wide-moat assets and deep connections around the world, I expect that the units will be delivering capital growth and rising distributions for many years to come.

(Disclosure: the author owns BIP.UN and BIPC personally and holds BIP.UN in his model Yield Hog Dividend Growth Portfolio. The purchase of 30 BIP.UN units was completed at Wednesday’s closing price and consumed $1,418.10 of cash. View the complete model portfolio online at tgam.ca/dividend-portfolio.)

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.