If I Could Only Buy 1 Stock Right Now, This Would Be it

Here’s an excellent core dividend stock to accumulate shares in, as the stock has pulled back to an attractive valuation.

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If I could only buy one stock right now, it would be a long-term core holding that pays decent income. It would be something that is both defensive and offensive in today’s environment. At the top of my mind is Brookfield Infrastructure Partners (TSX:BIP.UN). I’m so confident about its long-term outlook that I would buy and hold it in my Tax-Free Savings Account (TFSA).

The corporation version of the stock, Brookfield Infrastructure Corporation (TSX:BIPC) trades at a premium of about 33% to Brookfield Infrastructure Partners, which makes the latter more attractive for income investors, especially since it has corrected about 14% in the last 12 months.

What’s weighing on the stock is likely a higher cost of capital that spurred from rising interest rates and depressed stock valuations and increased the cost of borrowing.

Quality portfolio

Brookfield Infrastructure owns and operates a global portfolio of long-life, quality assets across essential infrastructure sectors of utilities, midstream, transport, and data operations. They serve as the backbone of the economy. Some of its assets include regulated transmission, commercial and residential distribution, rail, toll roads, diversified terminals, data transmission and distribution, and data storage.

Growing dividend

BIP’s portfolio generates cash flows that are about 90% regulated or contracted. Moreover, approximately 70% are indexed to inflation, which means the recent higher inflation has boosted the utility’s cash flow generation. Also, roughly 75% of its cash flows has no volume risk. Altogether, it means that BIP generates sustainable cash flows.

Generally, management targets organic growth of 6-9% annually for its funds from operations (FFO) per unit. Because of higher inflation, that growth could bump up to 10%. In any case, the quality infrastructure business has a proven track record of increasing its cash distribution with a 10-year growth rate of about 8%.

As BIP targets a sustainable payout ratio of 60-70%, unitholders can expect continued dividend growth of 5-9% going forward. Currently, its cash distribution is close to 4.8%.


Assuming no stock valuation expansion, the stock can still deliver annualized returns of about 10-11%. However, the quality dividend stock is actually undervalued. According to the analyst consensus 12-month price target, TSX:BIP.UN trades at a discount of close to 29% at $44.36 per unit at writing.

In other words, it has upside potential of 40% based on this price target. Although analysts think this upside can materialize in a year, it would be more conservative for investors to have a holding period of at least three years for greater return potential.

Investor takeaway

No investment is without risk. Utilities like Brookfield Infrastructure inherently have lots of debt. For example, BIP’s long-term debt to total liabilities increased from 58% in 2019 to 64% in 2022. Accordingly, its interest expense also more the doubled to US$1,855 million in 2022. Year over year, the interest expense increased by 50%.

Investors don’t need to be overly alarmed, though, as BIP is managing its debt fairly well. It has a solid S&P credit rating of BBB+. And much of its borrowings are fixed-rate debt.

Stock investing requires investing long-term capital with the expectation of volatility in between even for quality stocks like BIP. Long-term investors should be rewarded with dividend growth and price appreciation, as the business grows over time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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