A proven strategy to generate market-beating returns is to identify a portfolio of blue-chip dividend growth stocks that can maintain and increase their payouts across market cycles. Ideally, these stocks should be part of expanding addressable markets and reinvest in organic growth or acquisitions, all of which should drive future cash flows and dividends higher.
Investors should also benefit from long-term capital gains in addition to steady dividend payouts. Here are two fundamentally strong dividend stocks that could double payouts by 2030.
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Brookfield Infrastructure Partners stock
Valued at a market cap of $19 billion, Brookfield Infrastructure Partners (TSX: BIP.UN) owns and operates a diversified portfolio of cash-generating assets that generate growing distributions for shareholders. It aims to grow dividends between 5% and 9% annually, which should help double total payouts by the end of this decade.
In the last 10 years, BIP stock has returned 136.5% to shareholders. However, if we adjust for dividends, total returns are closer to 283%. Between 2009 and 2023, Brookfield Infrastructure increased its funds from operations, or FFO, per unit by 15% annually, while its distribution per unit rose by 9% in this period.
In 2023, BIP’s FFO stood at US$2.95 per share, while its dividends were US$1.62 per share, indicating a payout ratio of 55%. Despite an uncertain environment, BIP increased its FFO per share by 10% in the second quarter (Q2) of 2024 to US$608 million.
Brookfield’s strong underlying performance in Q2 was driven by inflationary rate increases in its utilities and transportation business. Moreover, higher revenues in its midstream operations and the commissioning of more than US$1 billion of new capital in the last 12 months drove top-line growth.
Priced at 10 times trailing FFO, BIP stock is quite cheap and trades at a discount of 27% to consensus price target estimates. After adjusting for dividends, total returns may be closer to 32%.
Broadcom stock
Another quality dividend growth stock is Broadcom (NASDAQ: AVGO), which has a market cap of US$727 billion. In the past decade, Broadcom has returned close to 2,700% in dividend-adjusted gains. During this period, the tech giant has raised dividends by 33% annually, which is exceptional. Today, Broadcom pays shareholders an annual dividend of US$2.10 per share, indicating a yield of 1.3%.
Broadcom’s free cash flow increased from US$12 billion, or US$2.33 per share, in fiscal 2019 (ended in October) to US$21.96 billion, or US$4.24 per share, in the last 12 months. With a payout ratio of less than 50%, Broadcom has enough flexibility to lower balance sheet debt and target accretive acquisitions.
Broadcom owns and operates diversified businesses ranging from semiconductor chips to software. It is also part of the AI megatrend, as the company is experiencing strong demand for its networking switching and routing chips due to the massive data requirements of such AI platforms. Broadcom stated that AI-related sales stood at US$4.2 billion in fiscal 2023 and might surpass US$11 billion this year, almost tripling year over year.
Priced at 32.7 times forward earnings, AVGO stock might seem expensive. But it trades at a 28% discount to consensus price target estimates.
