There's a lot of uncertainty as we head into 2023. Interest rates have risen sharply to combat high inflation, making investors increasingly worried we could experience an economic downturn in the coming year. That would impact the cash flows of economically sensitive companies, potentially forcing them to reduce their dividends.
However, some companies operate relatively recession-resistant businesses. On top of that, they have strong financial profiles. These factors put their dividends on extremely solid foundations.
Three stocks that fit that profile are Brookfield Infrastructure (BIPC 3.21%) (BIP 3.35%), Prologis (PLD -1.15%), and Kinder Morgan (KMI 3.46%). That makes them great options for investors seeking durable dividend income.
High-end growth ahead
Brookfield Infrastructure operates a diversified portfolio of infrastructure businesses across the utilities, energy midstream, transportation, and data sectors.
The company generates very stable revenue. Roughly 90% comes from long-term contracts or government-regulated rate structures. Meanwhile, 75% has no volume risk, and 70% gets indexed to inflation. Because of that, it's ideally suited for the current environment, since it's benefiting from inflation while an economic downturn won't have much impact on its revenue.
Meanwhile, Brookfield pays out 60% to 70% of that stable cash flow to support its 3.6%-yielding dividend. That allows it to retain a significant portion to fund maintenance and organic growth projects. The company has a strong, investment-grade credit rating, primarily long-term, fixed-rate debt, and lots of liquidity. Those factors put its dividend on a very firm foundation.
They also give Brookfield lots of flexibility to fund its expansion. It recently made several investments to drive its growth in the coming years. Add in elevated inflation and higher commodity prices, and Brookfield expects to grow its funds from operations (FFO) per share at or above the high end of its 6% to 9% annual range in the coming years. That should easily support its plan to grow its dividend by 5% to 9% per year.
Built-in growth
Prologis is a leading global logistics real estate company. The industrial REIT owns about 1 billion square feet of warehouse space across 19 countries, leased to 5,800 customers. Those long-term leases supply the company with steady rental income.
The company has a very conservative dividend payout ratio for a REIT (65% of its adjusted FFO this year). Because of that, it's on track to generate $1.4 billion in free cash flow after paying its 2.8%-yielding dividend. The company also has one of the strongest balance sheets in the REIT sector, with A-rated credit and a low leverage ratio. That gives it unparalleled financial flexibility to make acquisitions and invest in development projects.
The company recently completed a $26 billion deal to acquire its closest rival, Duke Realty, which will boost its FFO immediately. In addition, the company has yet to capture the full benefit of surging warehouse rental rates due to the long-term nature of its leases.
All this means it expects its same-store net operating income to grow at an 8% to 10% annual rate for the next several years as existing leases expire and reprice to higher market rents. Add in the growth from its development pipeline, and Prologis should be able to continue growing its dividend at a sector-leading rate.
Plenty of fuel to support its big-time payout
Natural gas pipeline giant Kinder Morgan offers investors a big-time dividend that yields 6.3%. That payout is on a very firm foundation, since long-term contracts, government-regulated rate structures, and hedging contracts lock in roughly 94% of its earnings. Meanwhile, the company only expects to pay out 53% of its very predictable cash flow to support its dividend next year.
That will give the company the cash to fund its capital projects with room to spare. Because of that, Kinder Morgan sees its leverage ratio falling to 4 times by the end of next year, well below its 4.5 times target. This financial flexibility allows it to opportunistically repurchase shares, make acquisitions, or invest in additional high-return expansions.
It also gives the company the flexibility to continue growing its dividend. Kinder Morgan already unveiled plans to increase its payout by 2% next year, which would mark its sixth straight year of growing the dividend.
Durable dividend stocks
Brookfield Infrastructure, Prologis, and Kinder Morgan generate very stable cash flow. Meanwhile, they pay out a conservative portion via their dividends. Add in their top-notch balance sheets, and those payouts are on extremely firm foundations. That makes them super-low-risk dividends stocks to buy amid the current economic uncertainty, since they should have no problem enduring whatever may come next.
