I buy a lot of dividend-paying stocks. I focus on dividends because they have proven to be powerful wealth creators. Over the past 50 years, dividend-paying stocks have outperformed the average stock market return. S&P 500 Index — their average annual total return of 9.2% beats the 7.7% produced by an equal-weighted S&P 500 index. Companies that increase and promote dividends have done most of the heavy lifting, posting an annual return of 10.2% compared with 6.7% for companies that did not change their dividend policy.
Given the power of dividends, I tend to invest in several dividend stocks each month. However, if I had to pick just one to buy this September, it would be Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP)Here's why.
A story of dividend growth and wealth creation
Brookfield Infrastructure was formed about 15 years ago as a spin-off of the company now known as brookfield fieldIt has been a phenomenal wealth creator over that period. The global infrastructure giant has raised its dividend every year, increasing its payout at a compounded annual rate of 9%. Not only has the stock outperformed the S&P 500 over that period, with an average annual return of 14.9%. total performance compared with the index's average yield of 10.8%, but its dividend yields are about three times higher today, remaining just under 4% at Friday's closing price.
Several factors have contributed to driving the company's ability to produce such strong dividend growth and profitability. One of the key ones is the overall stability of its portfolio. Brookfield Infrastructure's businesses generate stable cash flow backed by long-term contracts and government-regulated rate structures. The company says 85% of its funds from operations (FFO) They are protected from or indexed to inflation, providing them with a stable cash flow that tends to grow by 3% to 4% annually.
Brookfield Infrastructure also benefits from having a strong financial profile. It has a reasonable dividend payout ratio (between 60% and 70% of its stable cash flows), a strong investment-grade balance sheet, and plenty of liquidity that it routinely replenishes through capital recycling. The company uses its financial flexibility to invest in expansion projects and make acquisitions. Those catalysts and other organic drivers have allowed Brookfield Infrastructure to grow its FFO per share at a compound annual rate of 15% since its formation.
Multiple catalysts for growth
The company expects to continue growing at a good pace in the future. It has positioned its portfolio to take advantage of three major investment megatrends: digitalization, decarbonization and deglobalization. Each of these has a long growth path ahead.
Brookfield Infrastructure has built a massive data infrastructure platform to take advantage of the megatrend of digitalization. It has acquired several data center development platforms, cell tower operators, and fiber optic networks. The company has also partnered with Intel to build two new semiconductor manufacturing plants in the US
The company has also acquired several companies in the transportation, energy, midstream and utilities sectors to capitalize on the other two big megatrends. It tends to acquire scalable platforms that it can grow by investing in capital projects and making bolt-on acquisitions. It currently has a record $7.6 billion investment pipeline that it expects to complete in the next two to three years. Meanwhile, it expects M&A activity to pick up in the second half of this year, adding to the potential growth accelerator for 2025 and beyond.
Brookfield Infrastructure estimates that its platforms can organically grow its FFO per share by 6% to 9% annually through a combination of inflation-driven rate growth, volume growth as the global economy expands, and development projects. Meanwhile, it anticipates that accretive acquisitions funded through capital recycling will boost its FFO growth rate into the double digits. This forecast easily supports the company’s plan to increase its dividend (already yielding 4%) by 5% to 9% annually.
Powerful total return potential
Brookfield Infrastructure has an exceptional track record of growing its dividend and shareholder value, and it should continue to do so going forward. It expects to increase its dividend payout by 5% to 9% annually, while growing its cash flow per share at a double-digit annual rate. That should give it the fuel to produce average annual total returns of around 15%. That solid total return potential from such a low-risk company is why I would choose Brookfield Infrastructure over all others if I could only buy one dividend stock this September.
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Matt DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Intel and has the following options: January 2025 $30 call options on Intel, January 2025 $30 put options on Intel, November 2024 $45 call options on Intel, and October 2024 $45 call options on Intel. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: November 2024 $24 call options on Intel. The Motley Fool has a Disclosure Policy.
If I could only buy one dividend stock in September, this would be my top pick. Originally published by The Motley Fool