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Motley Fool: Investing in infrastructure

In 2014, Brookfield Infrastructure Partners acquired a 27 percent stake in VLI, one of Brazil’s largest logistics operators. (BIF)
In 2014, Brookfield Infrastructure Partners acquired a 27 percent stake in VLI, one of Brazil’s largest logistics operators. (BIF)

Brookfield Infrastructure Partners, L.P. (NYSE: BIP) is a master limited partnership (meaning it’s treated differently, taxwise, than most public companies), owning and operating critically important infrastructure assets that provide water, energy, data and transportation to millions of people around the world.

The company’s funds from operations have been growing, rising 14 percent from 2016 to 2017. Much of its cash-flow stems from long-term contracts – in many cases in markets where it operates as a regional monopoly. Unlike many other companies that prosper or falter along with the economy, Brookfield Infrastructure is much less vulnerable to the economic environment. After all, people may put off buying a new car in a recession, but they’ll keep paying for water and energy.

Brookfield plans to increase its payout between 5 percent and 9 percent each year as it steadily expands its portfolio. In 2017, it invested $2.7 billion in new assets and ended the year with $3 billion in available funds to continue its growth.

Infrastructure growth is a massive global need. Between 2014 and 2045, the global urban population is expected to increase by more than 2 billion people, who will need access to energy, water, data and transportation.

A recent pullback in Brookfield’s share price resulting in a hefty dividend yield near 4.6 percent presents a nice opportunity for income-seeking, long-term investors. (The Motley Fool has recommended Brookfield.)

Ask the Fool

Q: What are reverse stock splits? – T.M., Augusta, Georgia

A: Imagine you own 100 shares of a stock trading at $10 per share. With a regular split, such as a 2-for-1, you’d end up with 200 shares of a $5 stock.

Reverse splits go in the other direction. With a 1-for-10 reverse split, for example, you’d end up with 1 share for each 10 that you owned, and the share price will be multiplied by 10, so you’d have 10 shares, priced around $100 each. Note that the total value of your shares doesn’t change – it’s still $1,000. The company simply increased its stock price by decreasing its number of shares.

Reverse splits are often done to avoid getting delisted from a stock exchange that has minimum stock-price requirements. They can also prop up stock prices so they look less embarrassing. Be wary of companies announcing reverse splits, as they’re often in trouble.

Q: I know it’s best to invest in stocks for the long term, but how long is that? – B.P., Janesville, Wisconsin

A: Aim to hold on to the stocks you buy for at least several, if not many, years. As long as the company remains healthy and is likely to keep growing at a good clip, and as long as its stock price hasn’t gotten way ahead of itself, it’s probably best to hang on. Many fortunes have been built by people who stayed invested in solid stocks for decades.

Remember, too, that long-term capital gains are generally taxed at a lower rate than short-term gains. That’s another benefit of long-term investing. (For capital gains, “long term” means at least a year and a day.)

My dumbest investment

I bought 3,000 shares of Intuitive Surgical for around $16 apiece, held for several years while it moved sideways and then ultimately sold when it was trading for around $30 per share. I was tired of waiting for its story to unfold, which was a big mistake. I did make several thousand dollars on the investment, but I could have made so much more. Argh!

By the way, at a later point I noticed the Motley Fool recommending the stock, but I didn’t buy any because at that time shares were priced at several times more than I had sold mine for. Dumb! – R.B., online

The Fool responds: Ouch. That investment didn’t deliver a loss, but you did lose out on a lot of potential gains. The company, which makes robotic surgical machines, split its shares 3-for-1 back in October. Pre-split, shares were trading above $1,000; post-split, they have recently been trading in the low $400s. If you’d still had your 3,000 shares when the stock was at $1,000, they would have been worth $3 million!

It’s good to find and invest in strong companies with great prospects for continued growth, but you do have to wait for their potential to be realized. Sometimes that can take a while. Remember, too, that terrific companies that grow for many years will often seem overvalued along the way, scaring many away.

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