Investment Suggestion: Top-Yielding Dividend Share to Purchase in December's Market
I've got a bunch of high-yielding dividend stocks in my portfolio, and I'm pretty confident that all of them have the potential to deliver solid returns in the future. Some may fall short of my expectations, but others will likely exceed them.
Of all my high-yield dividend stock investments, I'm most bullish on Brookfield Infrastructure (BIPC). You might know it as BIP, and its stock is currently taking a hit (-0.67%). I'm 100% convinced that this company can deliver exceptional returns in the upcoming years. Here's why I think it's a fantastic long-term dividend stock pick for December.
An enduring, high-yield payout
Brookfield Infrastructure plays a significant role in powering global economies. It invests in utilities, energy midstream, transportation assets, and data infrastructure.
The cash flow generated by these assets is incredibly stable, with 90% of funds from operations (FFO) backed by long-term contracts and regulated rate structures. On average, these contracts have a 10-year remaining duration. About 70% of FFO is completely insulated from volume or price changes, while another 20% has exposure to economic growth fluctuations, but it's rate-regulated. Approximately 85% of FFO is either indexed or safeguarded against inflation.
Brookfield Infrastructure pays out around 60% to 70% of its steady cash flow as dividends, retaining the remainder to fund expansion projects. The company boasts a strong investment-grade balance sheet and a healthy cash reserve that it periodically replenishes by recycling capital. This self-funding strategy allows Brookfield to expand its business without issuing new equity (excluding significant mergers).
This solid foundation underpins Brookfield's high-yielding dividend, currently surpassing 3.5%. The global infrastructure operator has increased its payout for 15 straight years, growing its dividend at a brisk 9% compound annual rate during this period.
Propelled by the "3 D's"
Brookfield Infrastructure's portfolio is constantly evolving. It has been focusing on investing across three macro-economic trends: decarbonization, deglobalization, and digitalization. This thematic approach prepares it for robust growth in the coming years.
About 60% of FFO is entwined with the digitalization megatrend, a tremendously exciting investment opportunity. For instance, AI infrastructure, a growing subcategory, represents a whopping $8 trillion market potential over the next three to five years.
The company is already capitalizing on this opportunity, with a record backlog of nearly $8 billion worth of organic growth projects, including $5.5 billion in data center and semiconductor manufacturing investments. Additionally, Brookfield has another $4 billion in incremental organic growth projects under development.
The company is currently experiencing unprecedented levels of investment activity across its businesses, which it anticipates will persist in the future. Brookfield Infrastructure anticipates continuing to seize external growth opportunities via mergers and acquisitions. It plans to sell $5 billion to $6 billion in additional assets over the next two years to fund new investment opportunities.
In a letter to shareholders, CEO Sam Pollock wrote that the growth outlook for Brookfield Infrastructure's business is strong, with industry trends driving the massive infrastructure super cycle. The company's investment pipeline is larger than it's been in two years, and it's still growing.
These factors lead Brookfield Infrastructure to believe it can grow FFO per share by more than 10% annually in the coming years. This should readily support its target of delivering a 5% to 9% annual dividend growth rate.
Robust total return potential
Brookfield Infrastructure offers a high-yielding dividend with a solid foundation and growth prospects. It expects to grow its FFO per share at a double-digit annual rate in the upcoming years. Slowing down its dividend growth rate will further solidify its payout. That's why I firmly believe the company can provide attractive total returns, potentially in the mid-teens annually. I'd gladly buy more shares this December.
Given the robust cash flow generated by Brookfield Infrastructure's assets, I'm planning to invest additional funds into this dividend stock. Its high-yield dividend, backed by a strong foundation and growth prospects, has potential to deliver mid-teens annual total returns, making it an appealing addition to my finance portfolio.
As a long-term investor, I'm confident that Brookfield's focus on decarbonization, deglobalization, and digitalization will position it well to capitalize on the coming global trends, further enhancing its finance and money management potential.
