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Gordon Pape: Why I chose Brookfield Infrastructure Partners for my RRIF

I am one of the many Canadians who receive income from a Registered Retirement Income Fund (RRIF). That means I'm constantly on the lookout for investments that combine reasonable risk with dependable and growing cash flow.

One security that I have owned for years and continue to add to is Brookfield Infrastructure Partners. I first started to buy it in 2010, when the unit price was $12.60 (split-adjusted). Since then has the price has increased about 250 per cent and the distribution has gone from $1.10 (U.S.) a year to the current $1.57.

I continue to buy additional units on any price dip and have recommended it to readers of my Income Investor newsletter. Here are the details.

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  • Background: This Bermuda-based limited partnership is a spinoff from Brookfield Asset Management of Toronto. It invests in infrastructure assets around the world. Its assets include railroads, ports, toll roads, electricity transmission systems, natural gas storage facilities, telecommunications infrastructure, and more. The partnership has a stable revenue profile with approximately 90 per cent of cash flow supported by regulated or contractual revenues.
  • Unit performance: The units began trading publicly in early 2008. They suffered a setback in the crash of 2008-09, when the value dropped by more than 50 per cent. But since that time the units have been on a steady upward trend since, albeit with occasional dips along the way.
  • Financials: Results for the first six months of the year were very strong. Net income came in at $234-million (84 cents per unit), up from $150-million (55 cents per unit) for the same period in 2015. Funds from operations (FFO) were $464-million ($2.02 per unit) compared with $394-million ($1.80 per unit) a year ago.

"2016 is proving to be a strong year for our business, with FFO per unit up 12 per cent to date," said CEO Sam Pollock. "We believe that our backlog of organic growth projects due to come on line, combined with our recently acquired assets and large pipeline of new investments, will enable us to continue this growth into 2017 and 2018."

  • Recent developments: The partnership continues to add to its portfolio. In July it closed a deal to acquire a stake in Niska Gas Storage Partners for $180-million. The deal expands Brookfield’s gas storage capacity to 600 billion cubic feet, making it one of the largest independent owners and operators of natural gas storage in North America.

In another deal, Brookfield acquired a position in Rutas de Lima, a portfolio of urban toll roads in Peru, for $130-million. The roads operate under favourable, long-term 30-year concessions and generate stable cash flows under a fixed-tariff regime.

In late September, it was announced that the partnership, along with institutional clients of parent Brookfield Asset Management, reached agreement to acquire a 90-per-cent controlling stake in Nova Transportadora do Sudeste SA, a system of natural-gas-transmission assets in the southeast of Brazil currently owned by Petroleo Brasileiro SA (Petrobras), for approximately $5.2-billion.

  • Current distribution: Although the partnership is a subsidiary of a Canadian corporation and the shares trade on both Toronto and New York, the dividend is paid in U.S. currency. The rate after a three-for-two unit split in mid-September, 2016, is 39.33 cents per quarter ($1.57 per year).
  • Summary: This partnership invests in projects that are out of reach of ordinary investors. So far, the managers have been very successful in their acquisitions and shareholders have benefited. Ask your financial adviser if this security is suitable for your account.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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