I have a fairly simple financial goal. I want to become financially independent. In my mind, I'll achieve financial independence once I start generating enough income from passive sources to cover my basic living expenses.
This objective drives me to routinely invest in assets generating passive income, such as high-yield dividend stocks. I seek out companies with sustainable, steadily rising dividends.
One company exemplifying these qualities is Brookfield Infrastructure (BIPC 1.80%) (BIP 0.60%). It has become a cornerstone of my dividend portfolio. If I were only able to buy one high-yield stock this October, Brookfield would be my choice.
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Build to pay dividends
Brookfield Infrastructure operates a globally diversified portfolio of economically vital infrastructure assets. It owns premier utilities as well as energy midstream, transportation, and data infrastructure operations that generate stable cash flows. About 85% of Brookfield's funds from operations (FFO) come from assets backed by long-term contracts or government-regulated rate structures. They provide the company with very predictable cash flows, as 75% has no volume or price risk, while another 20% is rate-regulated with some volumes tied to fluctuations in the global economy. Meanwhile, 85% of its FFO is either indexed to inflation or protected against its impacts.
The company aims to pay out between 60% and 70% of its stable cash flow in dividends (67% anticipated in 2025). That provides a comfortable cushion while allowing Brookfield to retain earnings to fund new investments.
Brookfield also has a strong investment-grade balance sheet (BBB+ bond rating), giving it additional financial flexibility to make new investments. The company also heavily relies on its capital recycling strategy to fund growth by selling mature assets to finance higher-returning new investments.
This combination of durable cash flows and a conservative financial profile firmly supports Brookfield's more than 4%-yielding dividend.
A strong growth track record
Brookfield Infrastructure doesn't just pay a high-yielding dividend and call it a day. The company has a long history of growing its payout at an above-average rate. It has increased its dividend payment at least once each year since its formation in 2008, marking 16 consecutive years. Brookfield has grown its payout at an impressive 9% compound annual rate during that period.
The company has supported its strong dividend growth rate by growing its FFO at a 14% compound annual rate during that period. Two factors are driving its robust growth rate: strong organic growth, including inflation-linked rate increases and capital projects, as well as a series of accretive acquisitions that have expanded its asset base and earnings power.
Since FFO has grown faster than its dividend, Brookfield's payout ratio has steadily declined -- making its dividend foundation even more secure.
More growth ahead
Brookfield expects to continue growing at a brisk pace in the coming years. Key growth drivers include approximately $8 billion of organic expansion projects in the backlog, such as building two large-scale U.S. semiconductor fabrication facilities, multiple data centers worldwide, and other projects to expand its utility, transportation, and midstream platforms. The company is pursuing additional expansion projects, including those tied to AI infrastructure, which it sees as a potentially $500 million annual investment opportunity.
Additionally, the company continues to actively recycle capital into new investment opportunities. So far this year, Brookfield has raised $2.8 billion via asset sales. It's targeting to sell $3 billion this year and another $3 billion in the next 12 to 18 months. These sales will provide the company with additional capital to invest in new opportunities. Brookfield has already secured $2.1 billion of new investments across four deals. These new investments should boost its FFO per share over the coming quarters.
Brookfield believes that organic capital projects, acquisitions, and other drivers should enable it to deliver an FFO per share growth rate exceeding 10% annually in the coming years. It sees the potential for its growth rate to trend closer to its historical average of 14% annually in the near-term due to the growth it has already secured and the anticipated normalization of foreign exchange and interest rates. That positions the company to deliver dividend growth toward the high end of its 5% to 9% annual target range.
A fast-growing income stream
Brookfield Infrastructure pays a high-yielding dividend supported by stable cash flows and a strong financial profile. The company has an excellent record of increasing its payout at an above-average rate, which should continue. Those characteristics have made it a foundational source of income for me. They're why I'd choose Brookfield if I could buy only one high-yield dividend stock in October.
