Consistently beating the TSX every single year isn’t easy. In fact, most experts recommend buying index funds because picking individual stocks is difficult for that exact reason. The majority of TSX stocks go through cycles where they outperform for a period and then give some of those gains back.
That’s why some of the best long-term investments aren’t the most exciting ones, but the companies that quietly and consistently compound returns year after year.
So, naturally, one of the most reliable ways to outperform the broader market over time is by owning these high-quality businesses, especially top-notch dividend-growth stocks.
When a company consistently generates steady cash flow, uses it to pay a growing dividend, and reinvests capital back into the business, investors benefit from both income today and long-term growth over the years and decades that follow.
That’s exactly why Brookfield Infrastructure Partners (TSX:BIP.UN) continues to be one of the best stocks in Canada and why it’s well positioned to beat the TSX again and again for years to come.
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The perfect dividend-growth stock to buy and hold for years
There are two main reasons why Brookfield is a stock that can consistently outperform the TSX every single year: its defensive qualities and its growth strategy.
Brookfield is extremely reliable and defensive because it owns a diversified portfolio of essential infrastructure assets all around the world. These include utilities, transport networks, data infrastructure, and energy assets that people and businesses rely on every single day.
What makes these assets so valuable, in addition to the fact that they’re essential, is also that they’re not easily replaceable. They’re expensive to build, heavily regulated, and often face little to no competition. That gives Brookfield Infrastructure strong pricing power, which creates extremely predictable cash flow.
Furthermore, another reason it generates such predictable cash flow is that the majority of the company’s revenue is backed by long-term contracts with inflation-linked pricing.
Most defensive stocks with highly predictable revenue don’t offer significant growth potential, though. That’s where Brookfield differentiates itself.
The dividend-growth stock is constantly selling off mature assets and using that capital to reinvest in new opportunities.
In recent years, those investments have largely focused on long-term global trends, including data usage, digital connectivity, and energy transition.
Therefore, given its reliability and defensive nature, combined with its long-term growth potential and repeatable strategy, Brookfield is one of the few Canadian stocks that can realistically beat the TSX again and again.
Should you buy Brookfield Infrastructure today?
Although Brookfield is one of the best companies in Canada to buy and hold for the long term, the valuation still matters, as with any business. Luckily for investors, though, while the stock isn’t cheap, it’s nowhere near expensive either.
With Brookfield’s unit price sitting at just over $47, it’s trading at a forward price-to-adjusted-funds-from-operations (P/AFFO) ratio of just 11.8 times. That’s below its five-year average forward P/AFFO ratio of 14.4 times.
Furthermore, Brookfield aims to increase its distribution by 5% to 9% each year, and today that dividend yield is sitting at roughly 5.1%. That’s noticeably higher than its average forward yield over the last five years of 4.6%.
Therefore, while one of the best and most complete defensive growth stock trades undervalued and offers a dividend yield of more than 5%, it’s easily one of the best investments to buy now.
