Income Stocks: A Once-in-a-Decade Chance to Get Rich

Quality dividend stocks with a high yield such as Exchange Income offer you the opportunity to generate outsized gains.

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Dividend stocks can offer investors stability amid a volatile macro backdrop. Generally, quality dividend stocks generate cash flows across market cycles, allowing them to maintain these payouts and consistently increase dividends over time, enhancing your effective yield.

Armed with strong earnings and a slowdown in inflation, Canadian dividend stocks look quite attractive compared to their counterparts south of the border. Moreover, interest rates are expected to move lower in 2024, acting as a massive tailwind for dividend stocks.

Here are two quality dividend stocks income investors can buy and benefit from a once-in-a-decade chance to get rich.

Brookfield Infrastructure stock

Down 35% from all-time highs, Brookfield Infrastructure Partners (TSX:BIP.UN) offers you a tasty dividend yield of 5.55%. Capital-intensive companies part of sectors such as utilities, real estate, and clean energy, have grossly underperformed the markets in the last two years due to interest rate hikes.

However, investors should understand that Brookfield Infrastructure’s cash flows are tied to inflation escalators while it continues to invest in capital expansion projects. Around 70% of its cash flows are indexed to inflation, much higher than peers who operate on nominal-based tariffs where returns are based on the regulated asset base.

This business model will allow Brookfield to add over US$100 million in FFO, or funds from operations, in 2023, providing it with a competitive moat amid higher interest rates. Additionally, 90% of its debt is locked at fixed rates, providing it with visibility into borrowing costs over the next few years. For instance, if interest rates by 2%, Brookfield’s FFO will fall by US$25 million in 2024.

Brookfield Infrastructure is forecast to grow its FFO by 10% to US$3 per share, indicating its trades at 10 times future cash flows, which is very cheap. It also expects FFO to grow by 12% annually in the next three years, allowing it to raise dividends between 5% and 9% each year in this period.

Due to its cheap valuation, BIP stock trades at a discount of almost 60% to consensus price target estimates.

Exchange Income stock

Another high dividend TSX stock is Exchange Income (TSX:EIF), which offers you a yield of 5.8%. Down 18% from all-time highs, EIF stock has returned 2,600% to shareholders since its IPO (initial public offering) in 2004. Despite these outsized gains, EIF stock trades at just 15.3 times forward earnings, which is very cheap.

It reported revenue of $688 million in the third quarter (Q3), an increase of 17% year over year. Comparatively, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew 12% to $168 million, while free cash flow stood at $117 million.

With a payout ratio of less than 60%, Exchange Income raised dividends by 5% year over year. It now pays shareholders an annual dividend of $2.64 per share.

Exchange Income emphasized certain per-share metrics declined in Q3 due to the bought deal offering in Q2 and the capital on hand, which is yet to be deployed. Moreover, the acquisitions of BVGlazing and Hansen have exceeded expectations and are already accretive to shareholders.

Exchange Income stated its bought deal offering would be used to finance capital expenditures, including the new medevac contracts in British Columbia and Manitoba.

EIF stock trades at a discount of over 30% to consensus price target estimates.

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

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