A couple of factors seem to have weighed on the infrastructure giant.
Units of Brookfield Infrastructure Partners (BIP 0.78%) declined by 12.9% in the first half of 2024, according to data from S&P Global Market Intelligence. That was a steeper decline than its corporate twin, Brookfield Infrastructure Corporation (BIPC 2.57%), which fell only 4.6% in the first half. Both entities significantly underperformed the S&P 500, which rallied 14.5% to start 2024.
Here’s a look at what weighed on the infrastructure stock and whether it can rebound in the second half.
Brookfield is off to a strong start in 2024
Brookfield Infrastructure has continued to deliver strong operating results. The company reported its financial results for 2023 in early February. Its funds from operations (FFO) rose 10% last year, driven by 8% organic growth and the benefit of deploying over $2 billion into new investments. At the time, CEO Sam Pollock predicted, “We believe 2024 will be an even better year, and we are already off to a strong start on our capital recycling and deployment initiatives.”
That was certainly the case in the first quarter. The company’s FFO rose 11%, fueled by 7% organic growth and the strong contributions from the more than $2 billion of new investments it has made over the past year.
The company was in an excellent position to continue growing at a double-digit rate. Its organic growth drivers remain robust. Meanwhile, it continued to secure new investment opportunities. Brookfield agreed to boost its stake in its Brazilian integrated rail and logistics provider earlier this year. It also agreed to buy a portfolio of telecom towers in India.
Despite these positives, units of Brookfield Infrastructure Partners slumped in the first half. One potential factor was probably a filing that its parent, Brookfield Corporation, could sell up to 170 million of the limited partnership units it owns in its infrastructure subsidiary. That sale could see Brookfield Corporation reduce its stake from 32.3% to 6.6%.
Another likely factor weighing on Brookfield Infrastructure is that interest rates remain high. That increases the company’s borrowing costs. Higher rates also tend to weigh on the values of income-generating assets to increase their yield, making them more attractive than lower-risk income investment opportunities such as bonds and bank CDs. With its first-half decline, units of Brookfield Infrastructure now yield over 5%. That’s a higher dividend yield than its corporate twin — Brookfield Infrastructure Corporation’s dividend yield is around 4.5% — partly because the partnership issues a Schedule K-1 to limited partners for tax filing purposes.
Can Brookfield Infrastructure rebound in the second half?
Brookfield Infrastructure continues to grow briskly in the face of higher interest rates and trades at an increasingly attractive valuation and dividend yield. That makes the stock look like a compelling investment opportunity, especially given the view that interest rates should begin to fall later this year. That catalyst could give the stock the fuel to rally in the coming months.
Matt DiLallo has positions in Brookfield Corporation, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool has positions in and recommends Brookfield and Brookfield Corporation. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.