Inflation is one of the biggest threats to long-term wealth because it works quietly. Your savings account may show a growing balance, but if prices rise faster than your money earns, your purchasing power is shrinking.
This is why income investors shouldn’t solely focus on a stock’s dividend yield. The better question is whether the underlying business can continue growing its cash flow — and, ideally, its dividend — as the cost of living rises.
One dividend stock that can help you fight inflation is Brookfield Infrastructure Partners (TSX: BIP.UN). It owns and operates essential infrastructure around the world, giving investors exposure to assets that people and businesses continue to use regardless of the economic climate.
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How Brookfield Infrastructure can help you fight inflation
Brookfield Infrastructure owns businesses spanning utilities, transport, midstream infrastructure, and data infrastructure. These are essential services that consumers cannot easily abandon when prices increase. They are critical pieces of the economy.
More importantly, the company has significant exposure to inflation-linked revenues. About 85% of Brookfield Infrastructure’s funds from operations (FFO) are protected or indexed to inflation. Roughly 70% of the diversified utility’s FFO is indexed to inflation, meaning that inflation benefits this portion, allowing for margin expansion.
This is an attractive characteristic under a long-term inflationary environment. If operating costs and prices rise, businesses with contractual or regulated mechanisms for increasing revenue have a better chance of protecting their margins.
And Brookfield Infrastructure isn’t simply sitting on existing assets. Its investment strategy is built around acquiring, developing, and improving infrastructure, creating additional opportunities to grow cash flow.
For investors, this combination of essential assets, inflation exposure, and reinvestment could be more valuable than simply chasing the highest dividend yield available.
Brookfield Infrastructure offers an attractive and growing dividend
Here’s the part income investors may find especially compelling: Brookfield Infrastructure has a long track record of increasing its distribution.
In January, the company announced a 5.8% increase in its quarterly distribution, equating to US$1.82 annualized. That marked the 17th consecutive year in which it increased its distribution by at least 5%. Its five-year distribution growth rate was close to 6% versus the Bank of Canada’s long-term targeted inflation rate of about 2%.
This is important because a flat dividend can lose purchasing power over time. A growing distribution, by contrast, gives investors the potential for their income to increase alongside the cost of living.
Brookfield Infrastructure currently yields about 5% and targets 5% to 9% annual distribution growth, supported by a visible path with more than 10% annual FFO-per-unit growth.
That said, every investment has risks. Higher interest rates, leverage, currency fluctuations, regulation, and economic weakness can all affect the partnership.
The partnership is expected to merge with Brookfield Infrastructure in the fourth quarter of this year and effectively become a corporation after the transaction is completed.
The bottom line
For investors worried about inflation eating away at their savings, Brookfield Infrastructure offers an intriguing alternative to simply holding cash.
Its portfolio of essential infrastructure can generate relatively resilient cash flows, while inflation-linked revenues can help protect the economics of the business. Add a distribution that has increased for 17 consecutive years and management’s stated goal of continued distribution growth, and Brookfield Infrastructure starts to look like more than just a high-income investment.
