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I like profitable, growing businesses that enjoy an enduring competitive advantage or “moat.” I like them even more when they go on sale.

Brookfield Infrastructure Partners LP (BIP.UN-TSX) is a shining example.

Since touching a recent high of $55 in August, shares of the diversified global infrastructure play have skidded about 9 per cent – likely a response to rising interest rates, which have put pressure on dividend stocks in general.

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Now for the silver lining. The units, which closed Tuesday at $50.50 on the Toronto Stock Exchange, now yield an attractive 4.8 per cent (calculated by converting BIP’s annualized dividend of US$1.88 to Canadian dollars.)

Could BIP’s shares go lower? Sure. Will they go a lot lower? I doubt it. If you’re investing for the long run, the current dip may present an attractive entry point. While you wait for the shares to rebound, you’ll collect a juicy dividend that will almost certainly grow for years to come.

Here are five reasons I’m big on BIP. (I own the units personally and in my model Yield Hog Dividend Growth Portfolio.)

A well-diversified asset base

BIP’s roughly US$30-billion portfolio spans five continents and includes utilities, toll roads, railways, ports, communications towers and energy infrastructure assets – all essential to the functioning of the economy. The diversified nature of the portfolio – both by geography and asset type – helps to control political and economic risk. What’s more, the assets typically have high barriers to entry, which minimizes competition, and the vast majority are either regulated or contracted on a long-term basis, which makes for steady and predictable cash flow.

The right place at the right time

With population and economic growth creating demand for infrastructure investment around the world, opportunities abound for a global player such as BIP. As well, debt-strapped governments are increasingly turning to the private sector to operate infrastructure, creating a steady flow of potential deals. "BIP is a global infrastructure leader. In one complete package the company offers investors unparalleled access to a highly diversified … portfolio,” Industrial Alliance Securities analyst Jeremy Rosenfield said in a note in which he initiated coverage of BIP with a buy rating.

A growing payout

If you think BIP’s distribution is good now, it’s about to get even better. BIP targets annual distribution growth of 5 per cent to 9 per cent, and it typically announces increases in February when it releases fourth-quarter results. The company has exceeded its own distribution guidance over the past five years, with a compound annual growth rate of more than 10 per cent. There are no guarantees that double-digit growth will continue, but it’s a fairly safe bet that BIP will at least achieve its distribution growth target when it announces its next increase.

Rising cash flow

Distributions can’t grow in a vacuum. They have to be supported by rising cash flow or the increases won’t be sustainable. BIP aims to increase its cash flow – measured by funds from operations or FFO per share – by 6 per cent to 9 per cent annually through 2022, a rate that is in line with Mr. Rosenfield’s forecast. He cites four main drivers of BIP’s cash-flow growth: price increases, including contractual inflation escalators; growing demand from customers; investments to expand existing assets; and mergers and acquisitions. BIP and its institutional partners have had a busy year on the acquisition trail, acquiring residential energy services provider Enercare Inc., the Western Canadian natural gas gathering and processing assets of Enbridge Inc. and data centre operations from AT&T Inc.

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Favourable analyst ratings

Analysts aren’t always right about stocks, of course, but in the case of BIP there is widespread agreement that the outlook is positive. Of the 11 analysts who follow the company, there are 10 buy ratings, one hold and no sells. The average 12-month price target is US$46.55 ($60.25), which implies a gain of about 20 per cent from current levels. (The units also trade on the New York Stock Exchange under the ticker BIP.) Robert Catellier of CIBC World Markets, which has a buy on the units, calls BIP a “core infrastructure holding due to its scale, quality portfolio and sponsorship from [parent] Brookfield Asset Management Inc.”

Closing thoughts

Even excellent companies come with risks. In BIP’s case, “a significant change to long-term interest rate expectations would be a material headwind given the capital-intensive nature of its business model, “ Mr. Catellier said in a note. The company also faces country-specific risks, particularly in Brazil, which has struggled for years with political and economic instability. Yet BIP has demonstrated an ability to operate in a range of environments, and – despite the current softness in its share price – I expect that the distribution will continue to grow and the unit price will eventually move higher as well. (For a discussion of the tax implications of owning BIP’s units, read my column.)

Globe Unlimited subscribers can view the complete model Yield Hog Dividend Growth Portfolio at tgam.ca/dividendportfolio.

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