All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Based in Hamilton, Brookfield Infrastructure Partners (BIP) is in the Finance sector, and so far this year, shares have seen a price change of -6.76%. The operator of utility, transportation and energy assets is currently shelling out a dividend of $0.43 per share, with a dividend yield of 5.8%. This compares to the REIT and Equity Trust - Other industry's yield of 4.95% and the S&P 500's yield of 1.65%.
In terms of dividend growth, the company's current annualized dividend of $1.72 is up 6.2% from last year. Brookfield Infrastructure Partners has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Brookfield Infrastructure's current payout ratio is 52%, meaning it paid out 52% of its trailing 12-month EPS as dividend.
BIP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $3.45 per share, which represents a year-over-year growth rate of 10.58%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BIP is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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This article originally published on Zacks Investment Research (zacks.com).
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