Dividend stocks are wise investments. They've historically outperformed the broader market. Over the last half-century, dividend-paying stocks in the S&P 500 have produced an average annual return of 9.2%, according to data from Hartford Funds and Ned Davis Research. That has surpassed the 7.7% average annual total return of the equal-weighted S&P 500 Index.
The even smarter play is to invest in companies that grow their dividends. Dividend growers have significantly outperformed companies with no change in their dividend policy (10.2% versus 6.6%).
Brookfield Infrastructure (BIP +0.63%)(BIPC +0.00%) certainly delivers dividend growth. The global infrastructure giant has increased its payout for 14 straight years. That's helped it deliver a superior total return of 16% annualized since its inception. It expects to continue growing the payout at a 5% to 9% annual rate. Because of that, investing $1,000 in Brookfield would be a brilliant move this May.
NYSE: BIP
Key Data Points
The track record speaks for itself
Brookfield Infrastructure has increased its funds from operations (FFO) at an 11% compound annual rate over the last decade. The company has benefited from a trio of organic growth drivers (inflation-driven rate increases, volume growth as the global economy expands, and expansion projects). It also has an excellent track record of recycling capital. Brookfield routinely sells mature assets and uses the proceeds to fund higher-returning investments.
Those dual drivers have supported 9% compound annual dividend growth. Brookfield's payout currently yields 4.3%, surpassing the S&P 500's 1.7% dividend yield. That higher-yielding dividend provides a nice base return. A $1,000 investment in Brookfield would generate about $43 of annual dividend income compared to $17 from an S&P 500 Index Fund.
Visible growth ahead
Brookfield is still growing at a healthy clip. The company's FFO grew by 12% in the first quarter. It delivered robust organic growth of 9%, powered by elevated inflation, strong volumes in its transportation segment, and completing $1 billion of new capital projects. The company also benefited from investing $2.4 billion in several new acquisitions over the past year.
Those growth catalysts will continue driving its FFO higher this year. In addition, Brookfield completed its Heartland Petrochemical Complex in January. It's still starting up and should begin producing at capacity in the second half of the year.
Meanwhile, the company has already secured its next growth wave. The company and its partners are funding up to $15 billion of Intel's manufacturing expansion in Arizona. The Brookfield partnership will receive 49% of the revenue and related earnings produced by those facilities when they come online next year.
Brookfield also recently unveiled two more acquisitions. It's buying a premier European data center platform for $2.4 billion. The company expects to close that deal in the second quarter. It will supply incremental recurring cash flow from 100 megawatts (MW) of in-place capacity. In addition, Brookfield and its partners plan to add 400 MW of capacity over the next few years.
Brookfield and its partners are also acquiring Triton International in a $13.3 billion cash-and-stock deal. Triton will bolster the company's transportation logistics infrastructure platform when the transaction closes in the fourth quarter.
All this for a bargain price
Brookfield's growth drivers will increase its FFO per unit by more than 10% this year. It produced $2.71 of FFO per unit last year, implying it can deliver around $3.00 per unit in 2023. With its unit price recently around $35 apiece following an 18% decline from the 52-week high, Brookfield trades at less than 12 times its forward earnings.
That's dirt cheap compared to the broader market indexes, given Brookfield's growth profile. The S&P 500 trades at about 19 times its forward earnings, while the Nasdaq 100 fetches more than 26 times forward earnings.
A growing dividend at an attractive valuation
Brookfield Infrastructure has been a phenomenal wealth creator over the years, powered by its growing dividend. The global infrastructure operator expects to continue growing that payout in the future, driven by a trio of organic growth catalysts and its value-enhancing capital recycling strategy. With its shares trading at a bargain price, it looks like a genius stock to buy this month.
