If I Could Only Buy 1 High-Yield Dividend Stock in 2025, This Would Be It

Matt DiLallo, The Motley Fool

Sat, Jan 4, 2025, 3:31 AM 5 min read

I typically buy shares of many dividend stocks each year, focusing on high-yielding dividend stocks because they generate more income for every dollar I invest. However, if I could only buy shares of one dividend-paying company this year, it would be Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP). Here's why it's my top choice for generating dividend income in 2025.

A rock-solid income stream

Brookfield Infrastructure currently has a dividend yield of around 4%. That's more than three times higher than the S&P 500's (SNPINDEX: ^GSPC) dividend yield (roughly 1.2%).

The global infrastructure operator's higher-yielding dividend is on a very solid foundation. Its diverse array of utilities, transport, energy midstream, and data infrastructure businesses generate very stable cash flow. Roughly 85% of its funds from operations (FFO) come from long-term contracts or government-regulated rate structures. Meanwhile, that same percentage is either protected from or indexed to inflation.

Brookfield Infrastructure pays a reasonable percentage of its stable cash flow in dividends (60%-70%). That gives it a sizable cushion. It also allows the company to retain meaningful cash flow to help fund organic expansion projects.

The company also has a strong investment-grade balance sheet with lots of liquidity (cash and available credit). It predominantly finances its business with long-term, fixed-rate debt (it currently has an average remaining term of 14 years), which helps insulate its business from interest rate fluctuations. Brookfield routinely recycles capital (i.e., selling mature assets to fund new investments) to maintain its financial strength and flexibility.

A strong growth record, with more to come

Brookfield Infrastructure has an excellent record of increasing its dividend. Last year marked its 15th straight year of dividend growth (every year since it came public). It has grown its payout at a 9% compound annual rate during that period, including by 6% last year.

The company plans to grow its dividend at a 5% to 9% annual rate in the future. It should have no trouble achieving that target.

Brookfield expects a trio of organic drivers to grow its FFO per share by around 6% to 9% annually. They include:

Inflation indexation: About 70% of Brookfield's FFO comes from contracts that index rates to inflation, which should drive 3% to 4% annual FFO-per-share growth.
GDP growth: Roughly a quarter of Brookfield's FFO comes from either rate-regulated sources with exposure to economic growth (20%) or are completely market-sensitive (5%). Volume growth as the economy expands should boost its FFO per share by about 1% to 2% per year.
Reinvested cash flows: Brookfield reinvests the cash it retains after paying dividends into organic capital projects. These investments should grow its FFO by 2% to 3% each year.

On top of that, Brookfield expects to invest additional capital in larger-scale expansion projects and accretive acquisitions, which it will primarily finance by recycling capital. These additional investments should boost its FFO growth rate to more than 10% annually.

The company currently has nearly $8 billion of capital projects in its backlog, which includes investments in semiconductor manufacturing plants and data center development projects. On top of that, it has another $4 billion of projects under development.

That's a fraction of the roughly $100 trillion opportunity it sees ahead to maintain, upgrade, and build infrastructure over the next 15 years. That includes an estimated more than $8 trillion opportunity to invest in artificial intelligence (AI)-related infrastructure during the next three to five years. This investment supercycle drives the company's view that it should see significantly more opportunities to invest in the coming years.

In addition, the company's acquisition pipeline is as big as it has been in two years. That should provide it with additional growth opportunities.

Brookfield could easily grow its FFO per share at a more than 10% annual rate for several years to come. That would give it plenty of fuel to increase its dividend, which it could grow toward the upper end of its target range over the long term.

An exceptional dividend stock

Brookfield Infrastructure is a top-tier dividend stock. It has a higher-yielding payout, backed by rock-solid financials. On top of that, it has an excellent record of growing its dividend, which seems very likely to continue.

Given its current yield and expected growth rate, I'm very confident it can produce a very strong total return in the future (potentially in the mid-teens). That income and growth combination is why I'd choose Brookfield Infrastructure if I could only buy one high-yield dividend stock this year.

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Matt DiLallo has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

If I Could Only Buy 1 High-Yield Dividend Stock in 2025, This Would Be It was originally published by The Motley Fool

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