Economic storms blow through every few years. These downturns can affect the earnings of companies with economically sensitive business models. That can affect their ability to pay dividends.
That makes it crucial to focus on companies that can sustain their dividends no matter what's going on in the economy. Brookfield Infrastructure (BIPC -1.04%) (BIP -0.80%) and Reality Income (O -0.17%) built all-weather businesses that allow them to continue growing their payouts during tough times. That makes them great dividend stocks to buy for a potential lifetime of income.
Built to pay a growing dividend
Brookfield Infrastructure built its business to endure. The company owns a globally diversified portfolio of critical infrastructure assets. They generate very stable cash flow backed primarily by long-term contracts and government-regulated rate structures:
Image source: Brookfield Infrastructure.
As that slide shows, 70% of Brookfield's funds from operations (FFO) have no volume or price exposure. That means it can bank on this income, giving it a very firm floor. Meanwhile, 20% of its earnings have some variability due to volume changes as the global economy expands and contracts. The final 10% is market-sensitive, making it more volatile since volumes and prices will ebb and flow with the economy.
The overall stability of Brookfield's cash flows provides a solid foundation for its dividend, which currently yields 4%. It could turn a $1,000 investment into an annual dividend income stream of $40 (and growing) at that rate. It further supports that payout by targeting a dividend payout ratio of 60% to 70% of its FFO. That payout ratio aligns with its most stable cash flows while giving it a nice cushion. It also enables the company to retain some earnings to help fund new investments.
The infrastructure giant also backs its dividend with a strong balance sheet. The company has a BBB+ bond rating, primarily long-term, fixed-rate debt (with limited maturities through 2027), and lots of liquidity (cash and available credit). The company's fortress-like balance sheet gives it lots of financial flexibility.
Brookfield's financial flexibility helps support its continued growth. The company expects its FFO per share to rise by 6% to 9% per year, fueled by several organic growth drivers (inflation-linked rate increases, volume growth as the global economy expands, and expansion projects). Meanwhile, it can grow even faster by making value-enhancing acquisitions. They support the company's view that it can increase its dividend (currently yielding around 4%) by 5% to 9% per year. That would extend the company's streak of increasing its payout, which hit 14 years in 2023.
This incredible dividend should keep growing
Realty Income certainly lives up to its name. The REIT invests in income-producing properties that can support a dependable dividend, which it pays monthly. The company has paid 637 consecutive monthly dividends. It has a remarkable track record of growing its dividend. Realty Income has increased its payment 121 times since its public market listing in 1994, including for the past 103 straight quarters. With a current yield of 5.5%, Realty Income could turn a $1,000 investment into a $55 (and growing) annual dividend income stream.
The REIT focuses on owning properties resilient to economic downturns and the pressure of e-commerce, with 91% of its rent coming from companies with those durable features. Top tenant sectors include convenience stores, grocery stores, dollar stores, home improvement centers, and pharmacies. Realty Income also owns industrial, gaming, and agricultural properties.
Realty Income leases its properties under long-term, triple net leases (NNN) with credit-worthy tenants. These agreements insulate the REIT from inflation-affected costs like building insurance, maintenance, and real estate taxes. These features enable the company to generate very stable rental income.
The REIT pays out a conservative portion of its rental income via dividends (its payout ratio was 76.5% of its adjusted FFO in the second quarter). That gives it a nice cushion while allowing it to retain earnings to fund new investments. Meanwhile, Realty Income has an elite balance sheet. It's one of only a handful of REITs with A-rated credit. That gives it lots of financial flexibility to continue acquiring income-producing real estate. Given all the real estate that remains corporately owned, it has an enormous growth runway.
Durable dividend stocks
Brookfield Infrastructure and Realty Income have built highly resilient businesses, which allows them to pay very durable dividends. The companies generate very stable cash flow and have strong financial profiles, which enable them to expand their operations and payouts. They're great stocks to buy and hold to potentially earn dividend income for the rest of your life.
