RE:RE:Price drop? In the case of Brookfield, its declining unit price has pushed up the dividend yield to 7.1 per cent, as of Thursday. That is the highest yield in well over a decade, and up from a recent low of 3.1 per cent early last year.
There may be additional factors weighing on the unit price besides competition with bonds. Rising interest rates have raised borrowing costs, adding to concerns about the ability of some highly indebted companies to increase their dividends or make big investments in their operations.
More specific to Brookfield, the company issued about 21 million shares in Brookfield Infrastructure Corp. – same entity; different equity structure – to fund the takeover of Triton International Ltd. The issuance dilutes existing shareholders, especially when the share price is falling.
As well, Brookfield-owned Heartland Petrochemical Complex has faced operational delays, weighing on the parent company’s financial performance last quarter and perhaps further weighing on investor sentiment.
Despite these challenges, some analysts have grown more enthusiastic about the investing case as Brookfield’s unit price has fallen, offering hope to rattled investors.
“With the business continuing to perform well, we are of the view investors are being presented with an outstanding buying opportunity here,” Frederic Bastien, an analyst at Raymond James, said in a Oct. 17 note.
Mr. Bastien noted that the units trade at just 7.7 times funds from operations – or FFO, a measure of cash flow – compared with a five-year average of 12.5.
He added that Brookfield enjoys an investment-grade credit rating, with 90 per cent of its debt fixed to terms that average seven years, leaving it less exposed to rising rates than other companies. And it recently had US$2.3-billion in cash available to buy undervalued assets in what the company believes is a “buyer’s market.”
Last week, Patrick Kenny, an analyst at National Bank Financial, upgraded his recommendation on Brookfield to “outperform” – the equivalent of “buy” – from “sector perform.”
He argued that the company’s approach to investing, which involves streamlining operations and cutting costs within a long-lasting infrastructure supercycle, has plenty of runway.