I buy a lot of dividend stocks. I focus on dividend stocks because they have proven to be powerful wealth creators. Over the past 50 years, dividend stocks have outperformed the average stock in the United States. Standard & Poor’s 500 –The average total annual return of these companies, 9.2%, outperforms the 7.7% achieved by the equal-weighted S&P 500. Dividend startups and initiatives did most of the hard work, generating an annual return of 10.2% compared to 6.7% for companies that did not change their dividend policy.
Given the strength of earnings, I tend to invest in several stocks that pay dividends each month. However, if I had to pick just one stock to buy in September, it would be Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP)This is why.
A history of profitable growth and wealth creation.
Brookfield Infrastructure was founded about 15 years ago as a subsidiary of the company now known as BrookfieldIt has been a massive wealth creator during that period. The global infrastructure giant has increased its dividend every year, increasing its payout at a compound annual rate of 9%. The stock has not only outperformed the S&P 500 during that period, but has posted an average annual growth rate of 14.9%. Total return Compared to the index’s average return of 10.8%, its dividend yield today is nearly three times that amount, coming in at just under 4% at Friday’s closing price.
Several factors have helped drive the company’s ability to generate such strong earnings and revenue growth. Chief among them is the overall stability of its portfolio. Brookfield Infrastructure’s business generates stable cash flows supported by long-term contracts and government-regulated pricing structures. The company says 85% of its annual profits are distributed to shareholders. Funds from operations (FFO) Government bonds are either protected from or linked to inflation, which provides them with a steady flow of cash that tends to rise by 3% to 4% per year.
Brookfield Infrastructure also benefits from a strong financial profile. It has a reasonable dividend payout ratio (60% to 70% of its stable cash flow), 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. These and other organic drivers have enabled Brookfield Infrastructure to grow its net operating earnings per share at a CAGR of 15% since inception.
Multiple Growth Stimulants
The company expects to continue its rapid growth in the future. Its investment portfolio is positioned to benefit from three major investment trends: digital transformation, decarbonization, and deglobalization. Each of these trends has a long growth trajectory.
Brookfield Infrastructure has built a large data infrastructure platform to capitalize on the trend of digital transformation. It has acquired several data center development platforms, mobile tower operators, and fiber optic networks. The company has also partnered with Intel Building two new semiconductor manufacturing plants in the United States
The company has also acquired several companies in the transportation, energy and utilities sectors to capitalize on the other two major trends. It tends to acquire scalable platforms that can grow through capital investment and add-on acquisitions. It currently has a record $7.6 billion in capital backlog that it expects to complete in the next two to three years. At the same time, the company expects M&A activity to pick up in the second half of this year, adding potential growth to 2025 and beyond.
Brookfield Infrastructure estimates that its platforms can grow their net operating earnings per share by 6% to 9% annually through a combination of inflation-driven growth, volume growth as the global economy expands, and development projects. At the same time, the company sees profitable acquisitions funded by recycled capital boosting its net operating earnings growth rate into the double digits. This forecast easily supports the company’s plan to grow its annual dividend (which is already 4%) by 5% to 9% annually.
Potential for strong total return
Brookfield Infrastructure has an exceptional track record of growing dividends and shareholder value. This is expected to continue going forward. The company expects to grow its dividend by 5% to 9% annually while growing its cash flow per share at double-digit annual rates. This should give it the fuel to produce average annual total returns in the mid-20s. This strong total return potential from a low-risk company is why I would pick Brookfield Infrastructure over all others if I could buy just one dividend stock in September.
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Matt Delallo The Motley Fool has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Intel and has the following options: Buy $30 Jan 2025 Intel, Sell $30 Jan 2025 Intel, Sell $45 Nov 2024 Intel, and Sell $45 Oct 2024 Intel. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: Sell $24 Nov 2024 Intel. The Motley Fool has Disclosure Policy.
If I could only buy one dividend stock in September, this would be my first choice. Originally posted by The Motley Fool