An Infrastructure Play to Help Diversify

In the never-ending quest for quirky holdings that might be able to deliver equitylike returns with little or no correlation to the U.S. stock market, as well as a decent dividend, here's a look at Brookfield Infrastructure Partners(BIP Quote).

BIP, which was spun off from Brookfield Asset Management(BAM Quote) on Feb. 1, owns infrastructure assets that it describes as high quality "with high barriers to entry and low maintenance capital requirements that generate stable and growing cash flows." It plans to invest in other projects it believes has similar attributes.

The management hopes to find these attributes with toll roads, airports, ports, more timber and more electrical transmission.

The current mix is comprised of complete ownership of Ontario Transmission, partial stakes in electricity transmission in Brazil and Chile and partial stakes in timber companies in Vancouver, Oregon and Washington State.

BIP thus far has delivered on the potential for low correlation, with only a 0.27 correlation to the S&P 500(SPX Quote), but it has been more volatile than the market so far, and BIP has lagged SPX since inception by 3%. I believe the lag and the volatility are mostly attributable to the timing of the initial listing, as the financial crisis has been unkind to just about every sort of high-yielding-but-complicated investment product out there.

The focus on cash flow as part of the objective reveals the intention to pay steady dividends, which for now are pegged at $0.265 quarterly per share. That targets a 60-70% payout ratio of adjusted net operating income (ANOI), which for BIP's management will be the bottom line measurement of profitability.