As a dividend investor looking to boost your passive income, there’s nothing better than finding a high-quality stock that offers an attractive yield that you can buy and hold for years. That’s why it’s no surprise that Brookfield Infrastructure (TSX:BIP.UN) stock is one of the best and most popular stocks in Canada.
The ideal dividend stock has a resilient business model that can consistently generate strong sales and cash flow to fund the dividend. However, it’s also just as important that the company is consistently growing, not only to increase the share price and create shareholder value but also so it can increase the dividend continuously.
Therefore, while Brookfield Infrastructure is certainly an ideal dividend stock from that standpoint, it’s worth buying for much more than its dividend.
Why is Brookfield Infrastructure one of the best stocks in Canada?
Despite the fact that inflation has cooled off significantly and interest rates are now on the decline in both Canada and the United States, there continues to be significant uncertainty in both the economy and the stock market.
Policymakers still hope to achieve a soft landing and begin a new economic expansion. Furthermore, political uncertainty in Canada, as well as questions about how the Trump administration will proceed with tariffs, continue to linger.
It’s this significant uncertainty that makes it difficult for investors to figure out exactly how to position their portfolios.
If uncertainty persists and the economy ends up weakening, low-volatility defensive stocks will be some of the most ideal investments. However, if we get the soft-landing policymakers are hoping for and the economy begins a new expansion phase, high-quality growth stocks could see a significant rally.
This is precisely why Brookfield Infrastructure stock is one of the best stocks you can buy now and hold for years.
By owning essential infrastructure assets that are diversified worldwide, Brookfield is a stock you can have confidence owning, even if the economic environment worsens.
Not only is the cash flow it generates highly resilient, but roughly three-quarters of its revenue is also indexed to inflation, creating a margin of safety for investors.
On the flip side, though, if the economy rapidly improves and we see a new bull market materialize, Brookfield Infrastructure stock can take advantage.
Despite its makeup as a resilient defensive business, Brookfield operates as a growth stock, constantly looking to sell off its more mature assets and reinvest the funds in new opportunities that management deems are undervalued or which can be improved through Brookfield’s years of expertise.
Therefore, there’s no question that a defensive growth stock like Brookfield is one of the best stocks to hold in your portfolio for years to come.
The main question, though, is whether Brookfield is worth an investment today, trading just 10% off its 52-week high and offering a dividend yield of just over 5%.
How attractive is Brookfield’s 5% yield?
Despite the fact that Brookfield Infrastructure stock is trading just 10% off its 52-week high, it still offers a tonne of value for investors today.
First off, its 5% yield is above its five-year average forward yield of 4.45%, meaning investors who buy now can lock in an above-average yield. In addition, though, its forward price-to-funds-from-operations (P/FFO) ratio is also lower than its longer-term average.
Over the past three years, Brookfield has averaged a forward P/FFO ratio of 11.25 times, and over the last five years, it’s averaged a forward P/FFO ratio of 12.5 times, both of which are significantly higher than the 9.5 times forward P/FFO ratio it trades at today.
Therefore, considering the uncertain economic and market conditions that continue to persist, as well as the fact that Brookfield Infrastructure is considerably undervalued, it has to be considered one of the best Canadian stocks you can buy today.
Plus, in addition to the attractive 5% yield it offers, Brookfield also consistently increases its distribution, with a goal to grow its payouts by 5% to 9% every single year.
Therefore, while Brookfield Infrastructure stock is undoubtedly a buy for its attractive 5% yield, it’s an even more compelling investment for its resilient business model, inflation-indexed cash flow, defensive growth strategy, and significant undervaluation in today’s economic environment.
