When you’re investing for retirement and buying stocks for your Registered Retirement Savings Plan (RRSP), one of the smartest things you can do is build your portfolio around a few cornerstone holdings. Core portfolio stocks are ones that are reliable, defensive, consistent, and capable of compounding steadily for decades.
The best and most reliable businesses to look for are those that have essential operations, generate stable cash flow, and have strong management teams that know how to allocate capital efficiently.
That’s exactly why infrastructure stocks are such an attractive option for RRSP investors. Infrastructure is essential to the economy, and the companies that own these assets generate steady revenue regardless of market conditions.
In fact, one of the best stocks on the TSX you can buy for an RRSP is Brookfield Infrastructure Partners (TSX:BIP.UN), a company whose mission is to own highly contracted or regulated businesses that generate significant cash flow with minimal variability and have long-term growth potential.
Brookfield believes that if it executes this business model well, it can grow its Funds From Operations (FFO) per share by more than 10% annually over the long haul.
So, if you’re looking for the best Canadian stocks to buy for your RRSP, here’s why Brookfield Infrastructure should be at the top of your watchlist.
What Brookfield Infrastructure does
The reason Brookfield is one of the best stocks you can buy for your RRSP is that it owns a diversified portfolio of essential infrastructure assets all across the world.
These assets include utilities, midstream energy systems, railways, ports, toll roads, data centres, and communication towers. This diversification, both geographic and by asset type, makes an already low-risk defensive stock even more reliable.
Plus, Brookfield doesn’t just buy any infrastructure assets; it targets undervalued businesses or operations with significant growth potential.
In fact, one of the reasons it continues to deliver such substantial gains is its track record of acquiring undervalued or underperforming assets, enhancing their operations, and then eventually selling them for substantial gains before recycling that capital into new, higher-yielding opportunities.
That strategy is what’s helped Brookfield’s FFO per unit to increase at a compound annual growth rate (CAGR) of 14% since 2009. Furthermore, it’s also what’s allowed Brookfield Infrastructure to increase its dividend for 16 straight years, increasing at a CAGR of 9% over that stretch.
Why is Brookfield one of the best stocks to buy for your RRSP?
While Brookfield’s track record is impressive, over the last five years, it has truly shown why it’s one of the best stocks to buy for your RRSP.
Over the last half-decade, through various economic environments such as the pandemic and periods of higher inflation and rising interest rates, Brookfield’s FFO per unit has increased at a CAGR of 13%.
In addition, even though Brookfield has been increasing its dividend every year, its payout ratio has declined from 78% in 2020 to 67% this year.
On top of that, Brookfield now has an $8 billion organic growth backlog, compared to just $2 billion five years ago, showing how well it’s positioned going forward.
The company has a tonne of growth potential over the coming years, especially with the rise of digitization and artificial intelligence driving massive demand for energy and data infrastructure, both industries where Brookfield already has a significant presence.
For example, Brookfield already owns and operates a growing portfolio of data centres and energy infrastructure projects that are critical to supporting this digital transformation.
Plus, in addition to its own long-term growth potential, an improving economic environment could also be positive for Brookfield. With interest rates starting to decline and the U.S. dollar starting to weaken, Brookfield’s earnings could see another significant boost.
So, if you’re looking for a reliable Canadian dividend stock to buy and hold for years in your RRSP, Brookfield Infrastructure is certainly one of the best.
