Best Buy: Brookfield Infrastructure Partners vs. Brookfield Asset Management
Based in Canada Brookfield Asset Management (NYSE: BAM) does exactly what the name suggests, which includes running Brookfield Infrastructure Partners (NYSE: BIP). While these companies are hip-related, they are not interchangeable investment options – and this becomes more and more evident as each seeks to grow. Here’s a quick rundown to help you decide which one is the best buy for you.
1. The big picture
Brookfield Asset Management has over 100 years of history of managing money for other people and for itself. For much of this history, the focus has been on infrastructure type assets. One of the ways he sought to develop is to create master limited partnerships such as Brookfield Infrastructure Partners. There are a number of such entities, which allow individual investors to “partner” with Brookfield Asset Management, which both manages and invests in these vehicles. Brookfield Asset Management calls its controlled partnerships “permanent capital” and charges a fee for managing companies. It all fits the business model of asset management.
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Brookfield Asset Management, however, has sought to expand its reach into other areas. Notably, the company recently acquired a controlling stake in bond specialist Oaktree Capital Management. Oaktree, and hence bonds, now represent 40% of Brookfield Asset Management’s commission-generating activity. Brookfield Asset Management’s business moves in a different direction as it grows, making it less and less similar to the infrastructure entities it controls, such as Brookfield Infrastructure Partners.
Brookfield Infrastructure Partners, for its part, owns and operates a globally diverse set of infrastructure assets. This is unlikely to change anytime soon. In addition, since its assets span various categories including transport, energy and data infrastructure, it is somewhat of a one-stop-shop for investors who wish to add an infrastructure investment to their wallets.
Long-term dividend investors will find Brookfield Infrastructure Partners’ infrastructure ownership model appealing. These are usually single assets (like toll roads, pipelines, power plants, or seaports) that cannot be easily replaced and generate fairly regular cash flows that can usually be slowly increased over time. This allows Brookfield Infrastructure Partners to pass growing income to shareholders at a fairly high rate – the payout yield is currently a generous 4.1%. Add this to management’s efforts to improve the assets they operate and make new acquisitions (often funded by divestments of valued assets) and Brookfield Infrastructure Partners has also racked up an impressive record of annual distribution increases, having increased disbursements in each of the past 13 years. . The compound annual rate of increase over the past decade has reached a staggering 11%. Dividend investors should really love the story here. A
Brookfield Asset Management itself has an impressive dividend history, having increased its payouts each year for nine consecutive years. It is, however, a long way from the partnership it pursues on two fronts. First, the yield today is much more stingy by around 1.5%. Second, the annualized increase over the past decade was 8%. There aren’t any numbers to be ashamed of either, but investors looking for yield are likely to find Brookfield Infrastructure Partners much more attractive.
There’s a caveat to note: Brookfield Infrastructure partners increased its distribution in the first quarter, and then, as the graph above shows, it appears to have reduced disbursements by around 10% in the second. trimester. This is not the case, however. What happened was that he made a distribution of shares to unitholders as he sought to create another way to invest in the company that avoided the master limited partnership structure. The total amount that existing investors receive is unchanged, with each unitholder receiving approximately 0.11 new share for each unit held, or approximately 10%. While the drop in payout might be interpreted as a cut by some, investors haven’t actually seen a drop in what they’ve raised.
Thinking long term is important for this entwined pair. The growth of Brookfield Infrastructure Partners comes from the purchase of infrastructure assets and their proper operation. This allows him to increase his income and sell assets that have appreciated so that he can buy assets that management believes are trading at a discount. (Brookfield Infrastructure has a long history of opportunistic purchases of disadvantaged assets.) It’s a fairly straightforward model to understand.
Brookfield Asset Management, on the other hand, grows by increasing the amount of money it manages. The acquisition of Oaktree, a bond company, was driven by two things: the assets of the company and the fact that it expanded the business of Brookfield Asset Management into a new area, generally. It therefore benefited from an instantaneous and significant increase in its commission-generating assets (up nearly 70% year-over-year in June) and the ability to sell Oaktree’s services to existing clients. , as well as Brookfield Asset Management’s services to Oaktree clients. It is neither better nor worse than the Brookfield Infrastructure Partners model, just different.
Please note that once a unit of Brookfield Infrastructure Partners is issued, it will remain outstanding until it is redeemed and canceled. This is why Brookfield Asset Management considers its controlled partnerships as permanent capital. However, a Brookfield Asset Management client can choose to withdraw their money at any time. If enough clients left, Brookfield Asset Management’s bottom line would be affected. In addition, the value of the assets it controls are subject to market fluctuations, so a significant bear market could also reduce its commission-generating activities. It is very different from operating a toll road or a data center.
Which one to buy?
Brookfield Asset Management and Brookfield Infrastructure Partners are well-run entities, and you probably wouldn’t go wrong with either. However, they are not interchangeable. Income investors looking for a diversified infrastructure game would obviously gravitate towards Brookfield Infrastructure Partners. Growth-over-income investors, on the other hand, are likely to be better served by Brookfield Asset Management over the long term. That said, Brookfield Infrastructure Partners is probably the more conservative option, which would rightly give it the end advantage for many investors.
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Brewer Ruben Gregg has no position in any of the stocks mentioned. The Motley Fool owns stocks and recommends Brookfield Asset Management. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.