A few weeks ago, I ran through some of the merits of Brookfield Asset Management (NYSE:BAM) - a relatively unusual investment vehicle that gives investors exposure to a wide range of investment assets, such as commercial real estate and infrastructure assets. Now it's time to consider one of the major holdings of BAM - Brookfield Infrastructure Partners (NYSE:BIP).

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Long-Term Assets with Steadier Demand
Brookfield Infrastructure Partners, or BIP, is built around assets that provide protected cash flows for long stretches of time. Much of BIP is built around electricity transmission and distribution, ports and gas transmission, but the company also holds timberlands and is looking to grow in markets like coal terminals, rail and petroleum gathering/processing.

A little over 40% of BIP's cash flow comes from long-term contracts, while nearly another 40% comes from regulated operations. That gives the company's management a lot of visibility on its cash flow streams and liquidity; allowing it to not only make long-range capital allocation decisions with more confidence, but also offer a sustainable dividend.

It's also worth noting that BIP's core assets don't require a large amount of ongoing spending. While ports, rails and toll roads do require maintenance, but once an electricity grid, railroad or port is built, most of the hard work is done and the company can look to enjoy decades of steady usage and cash flow.

Although BIP runs a balanced business in many respects, the company is definitely overweight to Australia in terms of where its capital is allocated. Large coal terminals, ports and rail assets are all located in Australia, and nearly half of the company's assets are here. While BIP's port business is oriented towards Europe, the company has relatively few other assets there.

A Different Kind of Partnership
As the name indicates, BIP is structured as a partnership, but it's not managed and run like most master limited partnerships (MLPs). BAM owns about 30% BIP and actively manages the assets, occasionally acquiring assets at the BAM level and transferring them down to BIP. While American BIP investors do have to contend with a K-1 and some added complications to their tax returns, BIP management avoids the unrelated business taxable income (UBTI) and ECI that so often makes partnership ownership complex or confusing.

A Strong Australian Asset Base Levered to Chinese Growth
BIP has substantial assets in Australia, including coal terminals with 85 metric tons of handing capacity and over 5,000 kilometers of railroad track. These assets are built around bringing the coal and iron mined by companies like Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP), and Peabody Energy (NYSE:BTU) in Western Australia to the ships that will carry it to markets like China.

At this point, BIP is the sole rail network in southwestern Australia and the company handles about 20% of the world's seaborne metallurgical coal. BIP is looking to get even bigger though, investing hundreds of millions of dollars in additional capacity - much of which will be covered under take-or-pay contracts that guarantee a certain level of cash flow.

Plenty of Opportunity to Grow
No brief article can really do justice to BIP's assets, but they are significant. The partnership controls nearly 9,000 kilometers of electricity transmission and distribution assets and typically earns healthy (high single digit to low teens) rates of return. BIP also owns hundreds of thousands of acres of timberland, and unlike Plum Creek (NYSE:PCL), most of this is prime coastal property that can serve Asian demand. Elsewhere, the company operates 30 port terminals and over 15,000 kilometers of natural gas transmission lines - including assets that serve more than half of Chicago's natural gas needs.

The Bottom Line
Companies like BIP are not the easiest for retail investors to value, as these stocks routinely trade based on net asset value, and independent calculations of NAV requires access to information that is often only available with expensive subscriptions. That said, dividend yield is not a bad proxy and at nearly 5%, BIP's valuation is reasonable for investors seeking a long-term position.

For those with the access and willingness to go a little further afield, there are numerous infrastructure companies around the world that operate assets such as ports, transmission networks and airports. In terms of convenience, income potential and asset quality, though, BIP is well worth a look by investors who want some exposure to cash-generating long-term assets.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Stock Analysis

    3 Volatile U.S. Industries to Exploit in 2016 (VRX, IBB)

    Read about volatile sectors in the stock market that may provide opportunities for investors in 2016, including energy, mining and biotechnology.
  4. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  5. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  6. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  7. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  8. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  9. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  10. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
RELATED FAQS
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center