A first look at a potential high dividend stock – Brookfield Infrastructure (BIP)

I read an article from Double Dividend Stocks titled “5 Defensive Utility Dividend Stocks With Increasing Institutional Buying”.  It mentioned a company named Brookfield Infrastructure Partners L.P. (BIP) that had some qualities that might make it a worthwhile high dividend stock during a broad stock market correction.  Let’s take a first look at Brookfield

Brookfield Infrastructure (BIP)

Market price: $24.85

Shares: 112.96 million

Dividend record – The company has only been around since 2007.  No dividend cuts in its history.

Dividend: $0.31 quarterly

Dividend yield: 4.99%

EPS: $4.55

Dividend payout ratio: 27% (the dividend appears safe)

Earning power – $1.14 average earnings @ 112.96 shares

(Earnings adjusted for changes in capitalization – BIP has issued many shares)

            EPS       Net inc.             Adj. EPS

2006     –           –                       –

2007     $0.05    $1.1 M              $0.01

2008     $0.72    $28 M                $0.25

2009     $0.52    $25 M                $0.22

2010     $4.25    $462 M              $4.09

Four year average earnings $1.14 per share

Value pricing at below 12 times average earnings = $13.68

Speculative pricing above 20 times average earnings = $22.80

Today’s market price: $24.85 is trading at 21.8 times average earnings

If 2011 net income can match 2010 net income, then the five year average earnings will grow to $1.82 and today’s market price would be trading at 13.7 times average earnings.  Warning: I haven’t looked into BIP’s business enough to know if 2011’s profits will be close to 2010’s.  Although the linked article shows some large expected EPS growth.

Strength of balance sheet: Appears strong, but how is it growing so quickly?  I don’t know yet, but the low current ratio and quick ratio shows a lack of current assets to cover current liabilities.

Image002

Book value per share: $44.13 ($4,985 M equity divided by 112.96 shares)

P/BV: 0.56 (really good)

Current ratio: 0.95 (over 2.0 is good)

Quick ratio: 0.18 (over 1.0 is good)

Conclusion: It is unclear at this point in time if this stock is speculatively priced or investment priced.  It has had one good year out of four in 2010, but is its 2010’s performance the new norm.  This company deserves to go on a watch list with an alert set at $21.88.  A thorough analysis would be necessary when its stock price drops between $21.88 and $13.68.  The company would begin yielding above 6% when its stock price drops to $20.66 (assuming it keeps its $0.31 dividend quarterly).

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* * * * * * *

Excerpts below from the article on BIP

Market: Electric Utilities

Market Cap: $3.92 billion

Institutional Transactions: 2.35%

Institutional Ownership: 55.12%

Brookfield Infrastructure (BIP): It’s a bit of a misnomer to call BIP a utility, since this is just one part of their many businesses – they also own oil & gas pipelines, port facilities, timberlands, and healthcare facilities. These other parts have helped them achieve higher ROE and EPS growth numbers, which you’ll see in the following tables.

BIP is the only stock in this group that exceeds all of the broad sector averages., due to its diversification into other higher margin businesses.

Dividend yield: 4.95%

Dividend payout ratio: 40.75%

Return on equity: 22.69%

Return on investment: 10.97%

Total debt/equity: 1.44

Operating margin: 62.39%

Valuations: Although utilities aren’t considered a growth sector, by any means, 2 of these stocks actually look undervalued on a next year PEG basis: BIP and HE. Additionally, BIP’s 5-year PEG is only .92. The Price/Book figures for these 2 stocks are also much lower than sector standards, and BIP has a very low Graham P/E x P/Book figure of 4.63.

EPS growth this year: 717.31%

Price to earnings ratio: 5.51

EPS growth next fiscal year: 95%

PEG; next fiscal year: 0.06

PEG; next 5 years: 0.92

Price to book value: 0.84

EPS growth next 5 years: 6.00%

Original link: http://seekingalpha.com/article/276627-5-defensive-utility-dividend-stocks-with-increasing-institutional-buying

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Published in: on June 27, 2011 at 1:48 pm  Leave a Comment  

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