Legendary investor Peter Lynch famously quipped that "the best stock to buy is the one you already own." That's because you've already done the research and have a high conviction in the company's return potential. I've heeded that advice over the years by routinely adding to my highest conviction positions.
I plan to follow it again this month. Even though Brookfield Infrastructure (BIP -0.80%) (BIPC -1.04%), Brookfield Renewable (BEP 0.19%) (BEPC 0.09%), and Enbridge (ENB -1.21%) are already some of my top holdings, I intend to buy even more shares this November. Here's why I plan to boost my positions in these high-conviction, high-yielding dividend stocks.
Too cheap to ignore
Units of Brookfield Infrastructure have inexplicably tumbled by nearly 30% from their 52-week high to around $27.50 apiece. That sell-off has pushed the global infrastructure operator's dividend yield up to 5.6%. That's its highest level in years.
Brookfield Infrastructure's shellacking comes even though the company is performing exceptionally well. It's on pace to grow its funds from operations (FFO) per unit by 13% this year to around $3.00 per unit. It's benefiting from elevated inflation, recently completed expansion projects, and value-enhancing acquisitions. Those same catalysts have the company on track to grow its FFO per unit at a 12%+ annual rate over the next three years. That will give the company the fuel to continue increasing its dividend, which it sees rising by 5% to 9% per year. That would continue its dividend growth streak, which hit 14 straight years in 2023.
Typically, companies growing that fast trade at a premium valuation. However, that's not the case for Brookfield Infrastructure. It currently trades at a mere 9.1 times FFO. That's dirt cheap. For comparison, the S&P 500 fetches around 18 times earnings. That's too good of a bargain to pass up.
The potential to produce powerful total returns
Units of Brookfield Infrastructure's renewable energy sibling, Brookfield Renewable, have also inexplicably plummeted. They're down nearly 30% from their 52-week high. That sell-off has pushed the renewable energy juggernaut's dividend yield up to 5.4%.
The company is also growing at a brisk pace. Its FFO per unit was up 10% during the second quarter, matching the rate it has delivered over the past decade. It's benefiting from rising power prices, improving margins, development projects, and acquisitions.
That quartet of catalysts has the company on track to grow rapidly in the coming years. Brookfield Renewable expects its organic drivers (rising power prices, improving margins, and development projects) to drive 7% to 12% annual FFO per unit growth through 2028. Meanwhile, acquisitions could add more than 9% to its FFO per unit each year.
That easily supports its plan to increase its dividend by 5% to 9% annually. Brookfield Renewable has delivered at least 5% annual dividend growth for the past dozen years. Given its high yield, Brookfield could generate total annual returns in the low-to-mid-teens for the next several years.
Taking advantage of a rare opportunity to enhance its platform and growth profile
Enbridge has lost almost 20% of its value from its peak earlier this year. That has driven its dividend yield up to 7.6%.
One factor weighing on Enbridge's stock is the market's distaste of its decision to go on offense and agree to buy three natural gas utilities from Dominion. The $14 billion transaction will create North America's largest natural gas utility platform. Enbridge sees the acquisition as a "once-in-a-generation" opportunity to add high-quality, large-scale utilities at a historically attractive multiple of 16.5 times earnings.
The deal will further enhance the stability of its cash flows. It will also improve its growth profile by adding several billion dollars of high-return capital projects to its backlog, which also features natural gas pipeline expansions and renewable energy investments. Those additional projects increase the company's ability to deliver on its plan of growing its earnings by about 5% per year.
That earnings growth will give Enbridge more fuel to raise its high-yielding dividend. The pipeline and utility giant has increased its payout for 28 straight years.
Too good to pass up on the opportunity to add
Brookfield Infrastructure, Brookfield Renewable, and Enbridge have taken a beating over the past year. Those sell-offs have driven up their dividend yields to enticing levels. That makes them look like extremely attractive investment opportunities right now, given the growth they have ahead. That's why I can't wait to add to my positions in all three this month.
