Despite my natural optimism, I find it hard to shake the feeling that financial markets are heading towards a tough time. It is not that there is any big crisis obviously on the horizon, just a series of little things that are causing worry. The Middle East is in its usual unstable state, the Chinese economy is maturing and growth is slowing as a result, the U.S. economy remains stubbornly slow with rate hikes on the horizon should it improve, and then of course there is Greece.
It is most likely that none of these elements will have a profound effect in isolation but the combination of them, or rather the market’s attention to them, seems to have put the brakes on for now. There have been good days for sure, but stocks in particular seem to be sensitive to news, and when traders have this many things to worry about it is easy to find a reason to sell. We are bouncing around the highs, which leaves us with a cap on the upside and some downside risk. It may be time to get a little boring and look for reliable cash flow rather than rapid growth.
That is why I have been looking at infrastructure stocks. Roads, bridges, pipelines, power grids and utilities are generally considered to offer little in the way of growth prospects, but they do fit the bill when it comes to reliable cash flow. In some cases, though, with a judicious use of that cash for acquisitions, pretty good growth can still be achieved in the space. Take Brookfield Infrastructure Partners (BIP) for example. Over the last five years the stock has nearly tripled; not bad for a supposedly low growth business.
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It seems that Brookfield is not done yet, either. They have expressed interest in the privatization of Australian ports and power lines and have been aggressively buying struggling companies around the globe. That is why analysts are forecasting a consensus growth rate of 22 percent in the coming year for the partnership. That would be a great growth rate in any stock, but when combined with the 4.7 percent yield that BIP offers, the stock starts to look like a must own.
Interestingly, as a U.S. rate hike draws nearer and anything that derives value from yield has fallen, Brookfield has held up remarkably well. This is in part down to the growth story, but also to the fact that BIP has a history of an increasing payout. That is sustainable in cash rich infrastructure businesses so the prospect of a rate rise hasn’t scared investors. Even if rates do go up this year, as most expect, the Fed has made it clear that they will do so gradually. Indeed, on Wednesday Janet Yellen made that clear once again, admonishing the market for focusing on the timing of a rate rise rather than the trajectory.
That combination of good potential for further growth and resistance to the negative effects of a rate rise is why, even though it may seem like a strange time to be buying into a yield driven partnership, BIP looks like a good bet for those who, like me, are looking to put a little boredom into their portfolio.