Dividends offer a low-cost way for shareholders to create a passive-income stream. You need to identify stocks with a high, safe, and growing dividend yield, which inevitably translates into market-beating gains.
In the last two decades, the Dow Jones Industrial Average Index has returned close to 500% after adjusting for dividends, outpacing inflation comfortably. But there is another TSX dividend stock that has beaten the Dow Jones by a wide margin.
Brookfield Infrastructure Partners (TSX:BIP.UN) went public in 2010 and has since returned 1,240% to shareholders in dividend-adjusted gains. Despite these stellar returns, BIP stock is down 25% from all-time highs and offers shareholders a yield of over 5%.
While Brookfield Infrastructure isn’t a household name, it owns and operates a portfolio of cash-generating assets across verticals such as clean energy, transportation, midstream, and utilities.
Let’s see why this TSX dividend stock should continue beating the Dow Jones index in 2024 and beyond.
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Why should you invest in BIP stock?
Brookfield Infrastructure provides you exposure to the infrastructure sector as it owns premium assets that deliver predictable cash flows with high profit margins. BIP believes significant capital is required to maintain and expand the infrastructure needs of the global economy, resulting in potential acquisition opportunities.
Brookfield Infrastructure emphasized that 2023 was a marquee year for the company as it executed several strategic priorities across business segments. The Canadian company benefitted from inflation indexation embedded within its operations, allowing it to generate stable cash flows despite macro headwinds.
How did BIP perform in Q4 of 2023?
In the fourth quarter (Q4) of 2023, Brookfield Infrastructure reported funds from operations (FFO) of US$0.79 per unit, or US$3.16 on an annualized basis. Its FFO also surged by 17% year over year in Q4 of 2023.
Given Brookfield Infrastructure pays shareholders a quarterly dividend of US$0.383 per share, its payout ratio is less than 50%, providing the company with the room to reinvest in growth projects, reduce balance sheet debt, and target accretive acquisitions.
In 2023, BIP closed US$2 billion of new investments in the transport and data segments, with expected returns above its initial target range between 12% and 15%. It finalized capital-recycling initiatives for total proceeds of US$1.9 billion.
BIP’s steady cash flows allowed it to end 2023 with significant liquidity while obtaining a second investment-grade credit rating from the credit rating agency Fitch.
In 2024, Brookfield has already closed the acquisition of Cyxtera, a North America-based retail co-location data center business. Brookfield Infrastructure has also secured a portfolio of 78,000 telecom towers in India that should generate significant synergies when combined with its existing operations.
Brookfield Infrastructure continues its capital-recycling initiatives. It recently completed multiple transactions generating US$550 million in proceeds and expects to deploy US$2 billion in capital recycling this year.
Due to its stellar performance in 2023 and a favourable business outlook in 2024, the board of directors approved a distribution increase of 6% to US$0.405 per unit in 2024 or US$1.62 per unit on an annualized basis.
The Foolish takeaway
Priced at less than 10 times trailing FFO, BIP stock is really cheap. Analysts remain bullish on BIP stock and expect shares to surge over 21% in the next 12 months. After adjusting for dividends, total returns will be closer to 26%.
