I own more than 100 stocks. I want to spread my risk around. I also like to take more of a basket approach by investing in several stocks that should benefit from a particular theme rather than a singular stock. I don't want to be right on the thesis but wrong on the company to capitalize on my view.
I typically buy shares of several companies each month as cash flows into my portfolio. However, if I could only buy one stock, it would be Brookfield Infrastructure (BIPC 1.85%) (BIP 3.14%). That's because the global infrastructure company pays a high-yielding dividend (satisfying my desire for passive income) and has focused its business on capitalizing on three megatrends (digitalization, decarbonization, and deglobalization). Because of that, I believe it can generate strong total returns while offering a very low-risk profile.
NYSE: BIPC
Key Data Points
An income lover's dream stock
Generating passive income is a core aspect of my investment strategy. My goal is to eventually produce enough passive income to offset my basic living expenses so that I don't need to worry about working to make a living. In the meantime, I reinvest the passive income I produce into generating more income.
Brookfield Infrastructure has been an excellent income stock over the years. The company has increased its dividend for 16 straight years (every year since its formation in 2008). It has grown its payout at around a 9% compound annual rate during that period.
The company's dividend currently yields more than 4%. That's an attractive level, considering that the S&P 500's (SNPINDEX:^GSPC) dividend yield is only around 1.2% these days.
That high-yielding payout is on a very sustainable foundation. Brookfield produces lots of stable cash flow. About 85% of its funds from operations (FFO) is from contracted or regulated assets, while 75% has no volume or price exposure (and another 20% only has volume exposure tied to changes in GPD). Meanwhile, 85% of its FFO is either indexed to or protected from inflation.
The company pays out 60% to 70% of its stable cash flow in dividends. On top of that, it has a strong investment-grade balance sheet. These features make Brookfield's high-yielding dividend incredibly safe.
Multiple growth drivers
Brookfield's assets generate stable and growing cash flow. The company estimates that its inflation-linked contracts and rate structures will add 3% to 4% to its FFO per share each year. Meanwhile, its GDP exposure can add another 1% to 2% in FFO per share annually. That adds up to 4% to 6% annual growth without investing any additional capital.
Meanwhile, the company has abundant investment opportunities due to its exposure to several global megatrends. It ended last year with nearly $8 billion of capital projects in its backlog. Most of that backlog (over $5.6 billion) were data infrastructure investments, like expanding its global data center platform and its investment in two U.S. semiconductor fabrication facilities. These projects should add another 2% to 3% to its FFO per share each year as it completes construction over the next two to three years.
Those projects are only a fraction of the massive investment opportunity Brookfield sees ahead for infrastructure investment. The company estimates that the world will need to invest a staggering $100 trillion to maintain, upgrade, and build infrastructure over the next 15 years. That includes over $8 trillion on AI-related infrastructure in the next three to five years. As a leading infrastructure investor, Brookfield believes it will seize a meaningful share of this investment opportunity.
Those investment opportunities will come from organically expanding its existing infrastructure businesses, investing in projects developed by others (like its semiconductor co-investment project), and acquisitions. The company recently noted that its early-stage acquisition pipeline is the deepest it has been in years.
Brookfield estimates that its investments in capital projects and acquisitions will push its FFO growth rate above 10% annually in the coming years. That easily supports its plans to continue growing its dividend in the range of 5% to 9% per year.
Income and megatrend-powered growth
Brookfield Infrastructure offers the best of both worlds. It pays a high-yielding dividend that's on a very sustainable foundation. Meanwhile, it's growing at a very healthy clip, which should continue for many years, given its exposure to several global investment megatrends. Because of that, the company should be able to produce strong total returns, potentially in the mid-teens. Add in its lower risk profile, and it's the stock I'd buy if I could only choose one.
