Byte #34 - Brookfield Infrastructure (BIP): The Real Asset Power Player Hiding in Plain Sight

Dear Reader,

Wishing you all a very Happy new year! Here’s to welcoming 2026 with open hearts, bold dreams and renewed energy.

As we step into the year ahead, Morningstar has highlighted several key market themes shaping 2026:

• AI Accelerator revenue

• Hyperscaler capital expenditures

• AI-driven bond issuance

• Electricity Costs

• Tariffs

• Rental costs

Against this backdrop, I want to introduce a way to power your portfolio through Brookfield Infrastructure Partners L.P. (BIP) — a global owner of real assets that underpin the modern economy.

What Is BIP?

BIP is one of the largest owners and operators of critical global infrastructure networks which facilitate the movement and storage of energy, water, freight, passengers and data across the United States, Asia Pacific and Europe.

Its diversified portfolio spans:

• Utilities - natural gas and electricity distribution

• Transport - terminals, rail and toll roads

• Midstream - natural gas transmission, gathering and processing, and storage services

• Data - telecommunication, fiber, and data storage services

• Digital infrastructure - assets supporting the next wave of digitization and AI

The 2026 Bull Case for BIP

1. Infrastructure at the Center of the AI Buildout - Entering 2026, BIP is increasingly positioned to benefit from the massive global investment in AI-related infrastructure. Through large-scale partnerships and capital deployment initiatives launched in late 2025, BIP is expanding into data centers and behind-the-meter power solutions — areas where reliable power and long-duration assets are essential.

2. Growing Cash Flow - Funds From Operations (FFO) for Q3 stood at $654 million, or $0.83 per unit, representing a 9% year-over-year increase, reflecting both organic growth and disciplined capital allocation.

3. A Reliable Income Engine - BIP entered 2026 with an 18-year track record of distribution increases. Its annualized distribution of $1.72 per unit translates into a ~5.0% yield, offering attractive current income backed by stable cash flows.

4. The Capital Recycling Advantage - In 2025 alone, BIP generated over $3 billion by selling mature assets at attractive valuations and redeploying capital into higher-growth opportunities such as fiber networks and North American rail platforms — a hallmark of the Brookfield model.

5. A Defensive Moat - Approximately 85% of BIP’s FFO is generated from regulated or contracted assets, many with inflation-linked pricing, providing resilience across economic cycles.

As one analyst aptly summarized, the goal is to invest in durable real assets that generate high current income, grow distributions faster than inflation, and are supported by long-duration, fee-based cash flows. BIP fits this profile exceptionally well, while also offering broad geographic and sector diversification.

Valuation, Balance Sheet, and Growth Outlook

Management believes the company is approaching an inflection point, driven by digitization and infrastructure demand, targeting 12%–15% total annual returns. For more details on management’s growth trajectory, you may listen to the Q3’2025 investor presentation.

Despite its long-term track record and improving growth outlook, BIP continues to trade at a valuation that does not fully reflect the durability of its cash flows or the optionality embedded in its digital and AI-related infrastructure assets. The company maintains a BBB+ rated balance sheet.

To illustrate its growth, Brookfield generated $1.5 billion ($2.09 per share) of FFO in 2020. By 2025, the company expects $2.6 billion ($3.32 per share) of FFO, implying a CAGR of 13% on total FFO and 10% on a per-unit basis. Earnings have grown faster than dividends, driving the payout ratio down from 78% to 67%, which supports both income and reinvestment potential.

At the current price of $34.56, BIP trades at a P/FFO of 10.6, making its valuation attractive relative to sector benchmarks and its own historical average P/FFO of ~12.5x. Analysts estimate 10–11% annual FFO/unit growth, which, combined with a ~5% distribution yield, could translate into mid-teens total returns over time.

Risks to Keep in Mind

No investment path is linear. BIP does carry exposure to the pace of AI-related capital spending, and if that cycle slows materially, growth expectations could moderate. Additionally, like most infrastructure businesses, BIP is sensitive to interest rates, regulatory frameworks, and foreign exchange movements.

That said, the essential nature of its assets, long-term contracts, and inflation-linked revenues should allow BIP to continue delivering solid, inflation-beating returns even in less favorable environments.

With that, I rest my case on Brookfield Infrastructure Partners.

Thank you, as always, for reading and subscribing to #InvestSmartWithPooja.

See you next week.