Few investors would argue that critical infrastructure assets are some of the best long-term investments, as they’re often dependable cash flow machines. Just think of railway lines, prime real estate, ports, toll roads or energy generation assets. Some of the best assets, however, are often in private hands making it difficult for smaller investors to access them.

Brookfield Infrastructure Partners LP (TSX: BIP-U, OTC: BIP) provides a publicly listed vehicle for investors to own a portfolio of such assets. The $12 billion (all currency in U.S. dollars) Brookfield portfolio, which is well-diversified geographically and across asset classes, has four main divisions:

Utilities: Assets in North and South America, Europe and Australia including a regulated coal terminal, 10,800 kilometers of transmission lines and 2.4 million electricity and gas connections

Transport: 30 ports, 3,300 kilometers of toll roads and 9,900 kilometers of rail operations in Asia, Europe, North America, South America and Australia

Energy: Centralized district energy systems in North America and Australia as well as a natural gas pipeline and storage systems in North America

Communications infrastructure: 7,000 multi-purpose towers and 5,000 kilometers of fiber backbone in France

The graphs indicate a good spread of income across utilities, transport and energy with almost equal contributions from Europe, Latin America and Australia. Importantly, 90% of the cash flow from the operating businesses is regulated or contracted, stabilizing the income stream, while 70% of the cash flows are indexed to inflation. It is also worth noting that Brookfield currently has about 75% of its expected non-U.S. dollar income hedged back into the dollar for the next 18 to 24 months. So any negative effect of the strong U.S. dollar on the company’s financial results will largely be neutralized.

Excellent Track Record

Brookfield wants to increase funds from operations per unit by 6% to 9% per year and the dividend by a similar amount. (Note: Funds from operations are net income adjusted for non-cash items such as depreciation and deferred tax.) The goal is to increase profits from inflationary price increases, volume growth and reinvestment in existing businesses. Acquisitions, such as the Asciano transaction described below, could add further growth.

Brookfield has fared well since its 2008 listing, with funds from operations per unit growing 23% per year and the distributions per unit 13% per year. The return on invested capital also improved steadily from 8% in 2010 to 13% by 2014. Brookfield, which manages the asset portfolio, concluded more than $5 billion worth of acquisitions since the listing as well as disposals valued at around $1.5 billion. The success of these actions is evident from the high returns on recent sales that generated gains of more than 25%.

Corporate Structure Is a Concern

Brookfield is a limited partnership registered in Bermuda and listed in New York and Toronto. Investors are limited partners while Brookfield Asset Management (BAM) effectively acts as the general partner that manages and controls the operations. This creates the potential for conflicts of interest with investors having little say in the partnership’s affairs.

As the general partner, BAM earns fees for its services such as deal sourcing and structuring, and  monitoring the investments. The fees generally offer BAM an incentive to increase the value of Brookfield Infrastructure as well as the dividends. In 2014 the total fees amounted to $151 million or 1.76% when expressed as a percentage of the enterprise value. This is in line with fees earned by other private equity vehicles that offer similar arrangements, but it does provide a drag on distributable profits.

Nevertheless, BAM is a highly reputable global asset management business with US$200 billion of assets under management and a successful long-term track record managing portfolios of real estate, infrastructure and energy assets. BAM also holds around 27% of the units in Brookfield, which to some extent ensure an alignment of interests with investors.

Interesting Acquisition

In August 2015 Brookfield and its consortium partners agreed to acquire the Australian container terminal and rail operator, Asciano Ltd., for about $6.6 billion. The transaction is subject to shareholder, court and regulatory approvals but is expected to close by the end of the year.

Asciano’s business consists of a network of port and rail assets in Australia. They include container terminal operations in major cities; port, terminal and supply chain services; and above-rail haulage operations.

The  container terminals in North America and Europe as well as the rail logistics business in Australia and Brazil that Brookfield Infrastructure owns with Asciano will create a leading global rail, port and logistics business. Brookfield expects the transaction to double its port and rail profits and to add an estimated 7% to adjusted funds from operations on an annual basis.

Investment-Grade Rating

Brookfield currently has a $6.6 billion market capitalization with net debt of $6.3 billion and a debt-to-capital ratio of 54%. The Asciano transaction is sizable, and the additional debt to finance the transaction will add to an already substantial debt load. Brookfield is also in advanced negotiations to acquire further assets valued at around $700 million. Although the debt load could become cumbersome as interest rates rise, we consider it manageable for the foreseeable future. Brookfield carries an investment-grade Standard & Poor’s rating of BBB+.

Attractive Dividend-Based Valuation

Brookfield pays a quarterly dividend with an attractive 5.4% yield. The dividend payment track record  is sound with annualized growth of 13% per year since 2008. Management expects the dividend growth to continue at an annual rate of 5% to 9%, numbers that may be a little higher should the Asciano and other acquisitions close as planned. Importantly, the dividend is well-covered, representing only around 67% of the funds from operations.

The quality of the asset portfolio, strength of the controlling company and attractive valuation will appeal to income-seeking investors. Buy Brookfield below C$54 or US$41.