Buying dividend stocks can be a great way to grow your wealth. They can be powerful wealth creators over the long term. For example, data from Ned Davis Research and Hartford Funds shows that a hypothetical investor who put $100 into companies that pay a growing dividend would have seen that investment grow to over $15,000 in 50 years. That's a 10.2% annualized return. That compares with only about $900 by investing the same amount in non-dividend-payers, for a 4.3% annualized return.
If you've got $100 to invest this June, Brookfield Infrastructure (BIPC 1.52%) (BIP 0.43%) is one top dividend stock you shouldn't hesitate to buy. The global infrastructure operator offers an attractive dividend, with more than a 4% yield, and has a terrific record of growing its payout.
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Built for paying dividends
Brookfield Infrastructure has a business built to pay a growing dividend. The global infrastructure company operates a diversified portfolio of high-quality utilities, transport, midstream, and data assets that generate stable cash flows backed mainly by long-term contracts and government-regulated rate structures -- and by "mainly," I mean 85% of its funds from operations (FFO). Those frameworks also either index its rates to inflation, totaling 70%, or protect it from the impact of inflation, totaling 15%. That means its business generates steadily rising cash flow.
Brookfield targets to pay out 60% to 70% of its stable cash flow in dividends. That gives it a nice cushion while allowing the company to retain meaningful excess free cash flow to reinvest in growing its business. Brookfield also has a strong investment-grade balance sheet with lots of liquidity. The company maintains its financial flexibility by recycling capital to fund additional growth -- that is, selling mature assets to fund higher-returning new investments.
The company's strategy of acquiring high-quality infrastructure assets on a value basis, enhancing them through operations-oriented management, and then recycling mature assets into new investments has paid big dividends for investors over the years. Brookfield has grown its FFO per share at a 14% compound annual rate since its inception in 2009. That has helped fuel 9% compound annual dividend growth. Brookfield has increased its payout every year over that 16-year period. That has helped drive a 13.5% annualized total return for Brookfield investors.
Built to continue growing
Brookfield's inflation-linked contracts provide it with a solid growth baseline. The company estimates these agreements will add 3% to 4% to its FFO per share annually. On top of that, it expects economic growth to add another 1% to 2% to its FFO per share each year by driving volume growth across its infrastructure assets.
The company also invests its retained cash flows into expansion projects across its existing infrastructure platforms and new ones. It currently has a record backlog of nearly $8 billion in capital projects under construction that it expects to complete over the next two years. Most of these projects, totaling almost $5.9 billion, are in its data segment, which includes data center developments and two U.S. semiconductor fabrication facilities. Brookfield estimates these projects will add another 2% to 3% to its FFO per share each year.
Add up those three drivers, and Brookfield expects to organically grow its FFO per share by 6% to 9% per year. That supports its plan to increase its dividend by 5% to 9% annually.
On top of that, the company sees additional growth potential by continuing to execute its capital recycling strategy to make accretive acquisitions. Brookfield believes this plan can boost its FFO per share growth rate above 10% annually over the long term.
The company has been actively executing its strategy this year. It closed the sale of five assets, generating $1.4 billion in proceeds, and has more under way. Meanwhile, the company is already starting to put that capital to work. It agreed to invest $500 million in equity in the acquisition of a leading U.S. refined products pipeline system. Brookfield also formed a 70-30 joint venture with GATX to acquire Wells Fargo's rail operating lease portfolio, totaling 105,000 railcars, for $4.4 billion. As part of the deal, GATX has options to acquire Brookfield's interest over the next 10 years. The company will also directly acquire Wells Fargo's rail finance lease portfolio, totaling 23,000 railcars and 440 locomotives, which GATX will manage on its behalf. These deals will help enhance its FFO per share growth rate, giving Brookfield more fuel to grow its high-yielding dividend.
A compelling income and return profile
Brookfield Infrastructure built its business to pay an attractive and growing dividend. The company expects to increase its over 4%-yielding payout by 5% to 9% annually, supported by its plan to grow its FFO per share by more than 10% per year. That puts Brookfield in a strong position to produce total returns in the low to mid-teens. That's excellent return potential from a high-yielding dividend stock with a lower risk profile. You can buy shares without hesitating this June.
