While there is no 100% accurate way to predict whether a stock will be able to pay dividends forever, there are some stocks that are certainly more likely to than others. Here's why our contributors think investors who want a lifelong stream of dividend income should consider real estate investment trust Realty Income (NYSE:O) and energy plays Brookfield Renewable Partners (NYSE:BEP) and Brookfield Infrastructure Partners (NYSE:BIP).
The best all-around dividend stock in the market?
Matt Frankel (Realty Income): If I had to name one stock in my portfolio that I'm confident will still be paying me dividends when I'm 90 (I'm 36 now), it would be Realty Income Corporation. If you aren't familiar, Realty Income is a real estate investment trust that primarily focuses on freestanding retail properties, but it also has substantial holdings in office and industrial real estate as well.
I've written before that Realty Income might be the best all-around dividend stock in the market thanks to its fantastic combination of steady, growing income and long-term return potential. And I stand by that claim.
Realty Income has paid 576 consecutive monthly dividends -- that's 48 years' worth -- and the company has increased the payout for 83 quarters in a row. Better yet, the combination of steadily growing income and management's track record of creating value for shareholders has generated a 15.8% annualized total return since the company's 1994 NYSE listing.
These consistent returns are achieved thanks to Realty Income's net-lease structure, where tenants agree to pay variable costs of property ownership such as property taxes, building insurance, and maintenance, and also commit to a long-term lease with annual rent increases. Furthermore, the majority of Realty Income's tenants are retail businesses, but not the kind that is struggling to survive right now. Businesses like drug stores, convenience stores, fitness centers, and dollar stores are inherently resistant to both recessions and e-commerce competition.
A multidecade opportunity
Matt DiLallo (Brookfield Renewable Partners): In Brookfield Renewable Partners' second-quarter letter to investors, CEO Sachin Shah provided his investment outlook. He noted that over the last five years, investment in renewables topped $1 trillion. However, despite this massive sum, wind and solar still account for less than 8% of the global power supply. That leads him to believe that, "we are in the early stages of a transformation of the global power grid, moving from fossil fuels to renewables." He notes that "this will require significant investment over multiple decades." In Brookfield's view, just replacing the non-renewable energy-generating capacity in its core markets with wind and solar will require an astounding $10 trillion of investment. That led him to conclude that Brookfield's "opportunity to invest and grow our business should be substantial for many decades."
Brookfield is taking a dual-focused approach so that it can capture these opportunities. First, the company has developed a large pipeline of renewable projects that it hopes to build in the coming years. It already has several under construction, which will grow its cash flow as they come online. In addition to that, the company plans to continue buying renewable power assets from others, which will give it more cash flow to pay dividends while providing sellers with the money to develop new projects.
Brookfield anticipates that its internally generated growth alone positions it to increase cash flow at a 6% to 11% annual pace over the coming years, which it believes will support 5% to 9% yearly raises in its distribution to investors. Add in the upside from a continuing stream of acquisitions, and Brookfield is a great stock to hold for the decades ahead.
A compelling dividend growth story
Neha Chamaria (Brookfield Infrastructure Partners): I upvote my colleague Matt DiLallo's pick above and want to draw investors' attention to yet another entity belonging to the Brookfield Asset Management empire that should pay you dividends for the rest of your life: Brookfield Infrastructure Partners.
Brookfield Infrastructure has turned out to be a dividend powerhouse in its 10 years of existence, having grown its dividend per share at a solid annual compound rate of 11% since 2009. That growth was backed by an even more impressive 19% annual compound growth in the company's per-share funds from operations (FFO) over the period, demonstrating Brookfield Infrastructure's commitment to shareholders that's unlikely to wane anytime soon.
In fact, management is targeting annual dividend growth of 5% to 9% in the long run, backed by strong returns that Brookfield Infrastructure is confident of generating from its investments in transport, utilities, energy, and telecommunications sectors. The company buys quality assets currently out-of-favor at value prices and turns them around, often disposing of some when mature to reinvest the proceeds opportunistically. The key aspect of its business is that revenues from most of these assets are regulated or contracted, which makes the company's cash flows steady and predictable.
Brookfield Infrastructure has several diverse deals in the pipeline, as management revealed in its latest earnings release, all of which are expected to add substantial value to its portfolio. With strong growth potential in its FFO and a hefty 4.6% dividend yield to back it, this dividend growth stock is a compelling pick for the long term.
Matthew DiLallo owns shares of Brookfield Asset Management, Brookfield Infrastructure Partners, and Brookfield Renewable Energy Partners. Matthew Frankel owns shares of Realty Income. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.