1 The Risk of Stock Splitting – Investors Who Don’t Want to Love It (Hint: It’s Not Amazon or Tesla)

Investors haven’t had much to get excited about this year. The major stock market indices are all down. Rising interest rates have fueled fears of a possible recession.

Still, some investors found reason for at least a little excitement with some prominent companies conducting stock splits. Amazon (AMZN 2.66%)for example, it did a 20-for-1 stock split in June. Are you here (TSLA 3.60%) followed by a 3-for-1 stock split in August.

None of these stock splits served as impressive catalysts for the respective stocks. Investors wary of the broader market would be reluctant to dip their toes in the water. But here’s one stock that recently went through a stock split that risk-averse investors should love. And it’s not Amazon or Tesla.

With infrastructure

Brookfield Infrastructure (BEEP 1.25%) (BIPC 0.85%) it’s not a household name like Amazon and Tesla. One reason why is that it is much smaller than those two companies, with a market cap of $30 billion. Another factor, however, is Brookfield Infrastructure’s core business.

Infrastructure is not as sexy as online shopping and electric vehicles. Most people don’t think about the pipelines that carried the natural gas used to fuel heaters and kitchen appliances or the transmission lines that bring electricity to their homes. Although infrastructure is not given much attention, it is nevertheless extremely important.

Brookfield Infrastructure boasts an impressive array of infrastructure assets. The company operates 16,200 kilometers of natural gas pipelines and owns 65,800 kilometers of electricity distribution and transmission lines. Add to that 32,300 kilometers of rail operations, 3,800 kilometers of toll roads and 15,000 kilometers of natural gas transmission pipelines.

And there is more. Brookfield Infrastructure also has 1.5 million smart meters installed to measure energy use. It operates 11 shipping terminals and 17 gas and natural gas liquids processing plants. The company continues to expand further into data as well. It currently owns 164,700 operating telecom towers and rooftop sites, 22,000 kilometers of fiber optic cables and 52 data centers.

A smiling person in a data center.

Image source: Getty Images.

Relatively low risk

Not surprisingly, relatively few investors paid attention to Brookfield Infrastructure’s 3-for-2 stock split in June. However, many risk-averse investors should find a lot to like about Brookfield Infrastructure.

The company’s infrastructure assets generate consistent and recurring revenue. While Amazon and Tesla can be negatively impacted by inflation, about 70% of Brookfield Infrastructure’s cash flow is indexed to inflation. Competition isn’t nearly as much of a problem for Brookfield Infrastructure as it is for Amazon and Tesla.

Perhaps the most important risk-reducing factor for Brookfield Infrastructure is its diversification. The company is diversified across many types of assets, with no single type accounting for more than 30% of funds from operations (FFO). It is also geographically spread, with operations in North America, South America, Europe and Asia Pacific.

Brookfield Infrastructure’s financial history looks great. The company’s revenue has grown at a compound annual growth rate (CAGR) of 13% since 2017. It has a strong financial position with a BBB+ bond rating, meaning current default risk expectations are low.

Another big plus

Over the past 10 years, Brookfield Infrastructure stock has nearly tripled in price. However, its total return during the period amounts to 380%. The difference is due to another big plus for the stock — its dividend distribution.

Brookfield Infrastructure’s distribution yield has remained near or above 3% through most of 2022. The company has grown its distribution at a compound annual growth rate (CAGR) of approximately 10% since 2009. It expects to increases distribution, on average, by between 5% and 9% each year.

Of course, growth-oriented investors are likely to be more attracted to stocks like Amazon and Tesla. However, Brookfield Infrastructure should have its own solid growth prospects as it sells lower-yielding assets and invests in more profitable ventures. For risk-averse investors, this stock should be worthy of consideration even if it hadn’t recently undergone a stock split.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Amazon, Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool recommends Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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