Dividend stocks are attractive prospects for young and old investors looking to pump up total returns and simultaneously cope with rising inflation. However, a name that should be unstoppable going forward is Brookfield Infrastructure Partners (TSX:BIP.UN).
At $45.75 per share, the premier utility stock outperforms the TSX year to date at +10.32% versus +4.19%. The $20.97 billion infrastructure company expects to generate sustainable and growing payouts for shareholders over the long term. If you invest today, the dividend yield is a lucrative 4.52%.
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Pure-play infrastructure vehicle
Brookfield Infrastructure generate predictable and stable cash flows from its utilities, midstream, transport and data operations. Each essential, long-life asset has high margins and strong internal growth prospects. The company targets an annual growth rate between 5% and 9% for its sustainable, long-term distributions.
Management leverages its operating segments to actively pursue and acquire infrastructure assets it could manage and then extract an additional value after the initial investment. As the businesses mature and de-risking of cash flows is over, Brookfield recycles capital and re-invest in assets that generate higher returns.
Brookfield will only invest and utilize its operations-oriented strategy if it has sufficient influence on the assets. The goal is to generate a 12-15% return annually from in-place cash flows of the owned infrastructure assets. Upgrades and expansions of the asset base should drive business growth.
Competitive advantages
Through its critical global infrastructure networks, Brookfield Infrastructure facilitates the movement and storage of energy, water, freight, passengers, and data. The infrastructure assets are diversified by sector and geography (North and South America, Europe, and Asia Pacific), which is a competitive advantage.
Brookfield Infrastructure boasts a stable cash flow and low-volatility profile today, because regulated and contracted revenues support approximately 90% of adjusted earnings before interest, taxes, depreciation, and amortization. Besides the high barrier to entry in the infrastructure space, the diversified portfolio of assets mitigates exposure to any single regulatory regime.
Growth opportunities
Brookfield’s residential infrastructure operation is one of North America’s largest home energy solutions businesses. Its footprint in Europe and the U.K. is likewise growing. Management is confident about the organic growth of the commercial and residential distribution operations in the regions it operates.
The transport (terminals, rail, and toll roads) and midstream (natural gas transmission, gathering & processing, and storage services) segments are sensitive to market prices and volume. However, revenues are generally stable due to long-term contracts or customer relationships.
Management expects the increases in traffic volumes to trigger long-term growth in the South American economies. The tariff increases from inflation should also drive significant future cash flow growth for the toll road businesses.
Brookfield owns one of the largest long-haul pipeline and natural gas gathering and processing portfolios in Western Canada. Its gas pipelines in the U.S. are one of the country’s largest natural gas transmission systems. The bulk of revenues come from long-term take-or-pay contracts.
Brookfield’s data segment caters to the telecommunications, fibre, and data storage sectors. Management will continue pursuing potential partnerships with large service providers to build and operate its network segments to achieve attractive risk-adjusted returns.
Safe option
Brookfield Infrastructure Partners is a safe option in today’s challenging environment and market uncertainty. You can buy and hold this inflation-protected play and solid income provider. The best part is that you can stay calm for years.
