Better Buy: Brookfield Infrastructure Partners LP vs. Brookfield Asset Management Inc.

Although Brookfield Asset Management Inc. (NYSE: BAM) and Brookfield Infrastructure Partners LP (NYSE: BIP) share the Brookfield name, they are vastly different investments. Which one of these two is right for you will depend on what you are looking to invest in and why. Here's what you need to know about these two companies to make the right choice.

Brookfield Asset Management: The parent

Brookfield Asset Management is a Canadian-based global alternative-asset manager. The company employs around 80,000 people in 30 countries to generate income from around $285 billion in assets under management. Its focus, it says, is on, "investing in long-life, high quality assets across real estate, infrastructure, renewable power and private equity."

In addition to creating and managing private equity funds, Brookfield Asset Management also sponsors a series of publicly traded companies. Brookfield Infrastructure Partners is one of those, generating fees for what is, effectively, it's parent.

Brookfield Asset Management has been growing quickly. It had revenue of $40.8 billion in 2017, up from $9.3 billion in 2007. The top line has moved up in something of a stair-step fashion, with notable jumps coming when the company launches a new sponsored entity. For example, the top line jumped from $15.9 billion in 2011 to $20 billion in 2012 after the 2011 launch of Brookfield Renewable Partners LP, which invests in clean energy like hydro power, solar, and wind, among other things. That stair-step pattern is likely to continue, with the company currently raising capital for a number of different sponsored funds.

As an asset manager, however, the company's revenue and particularly its earnings can be volatile. That's because its revenue comes from fees and performance -- not directly from the underlying assets it is investing in on behalf of others. When the market is struggling, you should expect Brookfield Asset Management's results to follow suit. For example, between 2007 and 2009, the last recession, earnings fell from $0.83 per share to $0.47. The top line, meanwhile, was stagnant between 2008 and 2009, the worst part of that recessionary period. The company's dividend has trended higher over time, but also goes through notable spells where it remains unchanged between years. The yield is a modest 1.5%.

Basically, while Brookfield Asset Management's financial performance is tied to the infrastructure in which its controlled entities invest, that's not what really drives the business. If you make an investment in Brookfield Asset Management, you are buying a growth-oriented asset manager that's focused on increasing its assets under management.

Brookfield Infrastructure Partners: A child with diverse interests

As noted above, Brookfield Infrastructure Partners is managed by Brookfield Asset Management. Brookfield Infrastructure Partners invests in utilities, transportation assets, energy transmission, communications infrastructure and what it calls the "sustainable resources sectors" (timberland and farmland). Its portfolio spans the globe, including both developed and developing markets. The partnership grows by acquiring new assets largely funded by debt and the issuance of new units.

Brookfield Infrastructure Partners' top and bottom lines are driven by the performance of its diverse collection of assets and the growth of its portfolio. While revenue has headed steadily higher over the past decade, earnings have been more volatile. The distribution, however, has risen steadily, going up each year for 11 consecutive years. The yield is currently around 4.6%, more than twice the yield of the broader market and materially more than parent Brookfield Asset Management. The distribution has grown at an annualized rate of around 11% over the past five years, nearly four times the historical growth rate of inflation.

Breaking it down

Brookfield Asset Management has been in business for over 100 years and is generally well run. So far it has done a solid job managing its "children" in a shareholder friendly manner. The crux of the decision here, then, is really about what you are looking to add to your portfolio.

Brookfield Infrastructure Partners is an income investment. It is focused on growing its broad portfolio of infrastructure assets so it can keep increasing its distribution over time. Although I'm not personally fond of the extremely broad sector diversification in the partnership's portfolio, this is the investment I would lean toward here because I'm an income-oriented investor.

Brookfield Asset Management is a growth investment. It is focused on increasing its assets under management so it can earn more management fees. I'm less fond of this business, but not because it is poorly run. The yield isn't high enough and the dividend hasn't grown steadily enough for my taste. But that makes sense, based on the business model -- and it might still be the right choice for you, depending on the type of investment you seek.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.