Why an Underrated Dividend Giant Deserves Space in Your Portfolio

Key Points

• Brookfield Infrastructure is an overlooked multi-industry infrastructure play sporting growing earnings and an impressive dividend history.
• The firm's assets include utilities, energy, data infrastructure, and more.
• Brookfield's wide-ranging operations could help insulate it from economic turmoil, making it a potential defensive play.

At a time when investors tend to chase the latest big tech or data center winner, Brookfield Infrastructure Partners L.P. NYSE: BIP can slip through the cracks despite its strong potential to appeal to dividend stock hunters. The firm is a publicly traded limited partnership focusing on utilities, transport, energy and data infrastructure—everything from natural gas pipelines to data centers, rail networks, and more.

The company's draw for investors lies not only in its broad scope, which should help to insulate it against a potential downturn across the market or in specific sectors, but also in its strong (and growing) dividend, which is backed by solid cash flows.

Below, we'll examine why Brookfield deserves greater attention from investors. Its underlying fundamentals and growth prospects, its capacity to help balance an income-oriented portfolio, and its potential to remain a strong dividend play going forward make it a compelling investment.

Fundamentals and Growth Prospects

Brookfield's strong asset footprint positions it favorably for future growth. The company operates thousands of kilometers of power transmission lines, natural gas pipelines, and fiber and cable networks. It is heavily involved in one of today's trendiest growth areas—data center infrastructure—but balances that with stalwart assets that likely have both a long lifespan and perennial utility across multiple industries.

From an earnings perspective, Brookfield stands out for its impressive revenue beat in the latest quarter, driven by 5% year-over-year funds from operations growth to $638 million due to organic growth.

The company has also successfully recycled more than $2 billion in capital through sales of strategic assets throughout the year, allowing it to expand its fiber networks, to build on its North American railcar leasing business, and to acquire a major midstream energy operation in Colonial.

Thanks to these developments, Brookfield may be poised for noteworthy earnings growth in the coming quarters. Analysts see the firm boosting earnings by more than 10% in the upcoming year. At the same time, Brookfield stands out for its competitive price-to-book ratio of 0.55, while the company's performance in the last year of -2.5% helps to strengthen its potential as a value play.

Momentum may be building, however, as BIP shares have climbed by almost 9% in the last month.

Brookfield's Strengths as a Dividend Play

Brookfield sports an exceptionally high dividend yield of 5.02%, and the company's steady influx of cash should help it continue to deliver on this front for the foreseeable future. The firm relies heavily on government-set rate structures and multi-year contracts, representing most of its FFO.

A bonus for investors concerned about shifts in the economy or demand is that most of Brookfield's infrastructure assets are not tied to volume or price.

Investors can expect Brookfield to continue paying out more than half of its cash flow in dividends. This balance provides the company with a solid distribution and the funds needed to continue developing both new and existing projects.

With a history of 18 years of dividend payout increases, Brookfield will likely continue to increase its distributions going forward.

A Non-Glamorous But Appealing Dividend Source

Trendier or more flashy dividend names might draw investor attention, but a stable infrastructure play like BIP offers steady earnings and a growing dividend. The company's unique partnership structure may also deter some investors. However, thanks to this status's more favorable tax implications, this is likely only to benefit Brookfield as a firm.

These factors help to explain why seven out of nine Wall Street analysts are optimistic about Brookfield enough to call it a Buy, and why the company enjoys a predicted upside potential of more than 17%. At the same time, investors should note a significant uptick in short interest in BIP shares in the last month—an increase of 47%, although the firm has a low trading volume relative to many others on the market—so buying now may be a contrarian move.