Why I Can’t Stop Buying Shares of This Magnificent High-Yield Stock in My Retirement Account

This utility is an excellent retirement stock, providing juicy income, income growth, and wealth creation for the long haul!

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I hold Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) in my registered retirement savings plan (RRSP) retirement account. I continue to add shares whenever I find the stock to be attractive. Eventually, when I retire, I will be withdrawing income from my retirement account. So, it’s more straightforward to hold income investments in the account.

The utility provides juicy income that’s growing at a solid pace, driven by cash flow growth. In the long run, it has also outperformed the utility sector and the Canadian stock market. These are all very attractive qualities of a solid retirement stock.

Make juicy income from this high-yield stock

Brookfield Infrastructure Partners L.P. pays out a U.S. dollar-denominated cash distribution quarterly, which equates to a yield of about 5.4% at $40.98 per unit at writing. The utility targets a funds from operations (FFO) payout ratio of 60 to 70% to maintain a healthy cash distribution. Management also believes that it’s possible to achieve FFO growth of at least 10% per year, supported by organic growth of 6 to 9%.

The utility generates stable cash flows from a diversified portfolio of quality infrastructure assets around the world. For example, it owns regulated or contracted utility operations that total a rate base of US$7.9 billion. These include critical assets like gas pipelines and electricity transmission lines that are required no matter how the economy is doing. It also owns large rail operations, transmission pipelines, natural gas and natural gas liquids processing plants, natural gas storage, data centres, and more.

Brookfield Infrastructure offers above-average income growth

Since 90% of its cash flows are contracted or regulated and 85% is protected from inflation, its cash flows have been resilient through the economic cycle. Its organic growth comes from inflation indexation, gross domestic product growth, and reinvested cash flow. Last year, the organic growth was solidly at 8%.

Because of its global portfolio and operational expertise, BIP is able to make fitting acquisitions in any economic environment and optimize the assets. Its ongoing capital recycling program results in the redeployment of substantial proceeds (about US$2 billion annually) from selling mature assets for better risk-adjusted long-term returns.

Indeed, historically, the top utility stock has outperformed the utility sector with above-average growth that has resulted in higher cash distribution growth as well. This means income growing at an above-average pace for its long-term investors. For example, its 3-, 5-, 10-, and 15-year cash distribution growth rate is 5.8%, 6.3%, 8.3%, and 10.3%, respectively.

Simply outperform

The utility targets a return on invested capital of 12 to 15%. In the long run, the stock has, indeed, delivered total returns that outperformed the utility sector and the Canadian stock market. According to YCharts, TSX:BIP.UN stock’s 10-year total return is about 14% per year.

BIP.UN Total Return Level Chart

BIP.UN, XUT, and XIU Total Return Level data by YCharts

Going forward, Brookfield Infrastructure can continue to grow at a solid pace, providing nice income and wealth creation for the long haul. The current higher interest rate environment provides a buying opportunity in the stock. At the recent price, analysts believe it trades at a discount of over 20%. The stock is a good buy now and likely a better buy on further weakness, particularly for investors who have a long time until retirement.

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 Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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