The stock market has taken a big hit this year due to concerns about how much tariffs will impact the economy. There's growing worry that they could spark a global trade war that could ignite a major economic downturn. That could have a significant effect on financially weaker companies with economically sensitive businesses.
However, many companies have strong financial profiles and more economically resilient businesses. Because of that, they're in a much better position to weather a financial storm. They can continue to grow their businesses and dividend payments during tough times.
Three high-quality companies with durable businesses are Realty Income (O 1.11%), Brookfield Infrastructure (BIPC 1.27%)(BIP +0.19%), and Enbridge (ENB 0.32%). They've increased their dividends every year for more than a decade and a half, which includes some very challenging recessions. Here's what makes them some of the smartest dividend stocks to buy for those with around $500 available to invest right now.
A proven record of durability
NYSE: O
Key Data Points
Realty Income is a real estate investment trust (REIT) focused on owning properties net leased to many of the world's leading companies. Net leases deliver very stable rental income because tenants cover all operating costs, including routine maintenance, real estate taxes, and building insurance.
The company has a diversified real estate portfolio (retail, industrial, gaming, and other properties). It focuses on leasing properties to tenants in durable industries. About 91% of its rent comes from tenants in industries resilient to economic downturns and isolated from the pressures of e-commerce. These properties include convenience stores, grocery stores, and automotive service locations.
Realty Income also has a very strong financial profile. It's one of only eight REITs in the S&P 500 (^GSPC +0.85%), with two bond ratings of A3/A- or higher. Meanwhile, it has a low dividend payout ratio (75% of its adjusted funds from operations, or FFO).
The REIT's business model has proven its durability over the years. It has increased its dividend for 30 years in a row, which includes several significant recessions. Meanwhile, it has grown its adjusted FFO per share every year except for one (2009 during the financial crisis).
Built with durability in mind
NYSE: BIPC
Key Data Points
Brookfield Infrastructure owns a diversified portfolio of infrastructure businesses in the utilities, energy midstream, transportation, and data sectors. These businesses produce very stable cash flow, as 85% of its FFO comes from contracted or regulated assets. As a result, it generates very durable cash flow, with about 75% of its FFO having no volume or price risk (i.e., it gets paid a fixed rate regardless of market conditions), while another 20% is rate regulated with economic exposure (i.e., it gets paid a fixed fee based on volume). Those frameworks also either index its FFO to inflation (70%) or protect it from inflation (15%).
The company pays out 60% to 70% of its stable cash flow in dividends. It retains the rest and reinvests it to grow its business. Brookfield Infrastructure also has a strong investment-grade credit rating.
Brookfield Infrastructure's business model has proven its resilience over the years. It has increased its dividend in all 16 years since its formation. Meanwhile, it has significant embedded growth from inflation-indexation, a large backlog of capital projects, and its smart acquisition strategy. These drivers should give it the fuel to continue growing its dividend at a healthy rate.
As predictable as they come
NYSE: ENB
Key Data Points
Enbridge is one of North America's largest energy infrastructure companies. It owns leading oil pipeline, natural gas transmission, gas utility, and renewable energy franchises. These businesses produce very stable cash flow, as 98% of its earnings come from cost-of-service or contracted assets.
The company's earnings are so predictable that it has achieved its annual financial guidance for 19 years in a row. That's impressive considering all the market volatility during that period, which included two recessions, significant fluctuations in oil prices, and other adverse factors. Meanwhile, Enbridge has increased its dividend for 30 straight years.
Enbridge has growth through the end of the decade, as well as has a massive backlog of commercially secured expansion projects under construction. Thanks to its strong post-dividend free cash flow and investment-grade balance sheet, it has ample financial flexibility to fund these projects. Because of that, Enbridge should have no trouble continuing to increase its dividend.
High-quality dividend stocks
There's a lot of uncertainty right now about what's ahead for the economy. However, what's sure is that Realty Income, Brookfield Infrastructure, and Enbridge generate very resilient cash flows and have very strong financial profiles. That puts them in a position to continue increasing their dividends, even if we experience another recession.
Those growing payments will provide investors with a tangible return in what could be a volatile period. That certainty in an uncertain period makes them some of the smartest stocks to buy right now.
