Canadian Investors: Why I Love This Dividend Stock
“Good companies are generally considered to be those with high barriers to entry, low capital requirements, reliable customers, low risk of technology obsolescence, abundant growth opportunities and therefore high free cash flow. and growing. “
Seth A. Klarman is a billionaire investor and hedge fund manager who advocates investing in value. When I reread the wise passage quoted above by Klarman from the preface to the sixth edition of the Security analysis written by Benjamin Graham and David L. Dodd, professors of Warren Buffett, a business lighted in my mind – Brookfield Infrastructures Partners (TSX: BIP.UN) (NYSE: BIP).
This is an example of a top-notch dividend-paying stock with all the benefits of the quote.
High barriers to entry
The public service consists of high quality assets with significant barriers to entry which are diversified by customer type, regulatory environment and geography. For example, BIP owns a variety of transportation assets including rail lines, toll roads and diversified terminals which account for around 36% of the business. In addition, it has a portfolio of utility, intermediary and data infrastructure assets.
Reliable cash flow
Brookfield Infrastructure has low maintenance capital requirements. Its maintenance capital expenditures have averaged 19.65% of its operating funds (FFO) over the past five years. In 2020, it was 19.3%.
Because the utility provides essential products and services to the economy, you can count on its infrastructure assets do not becoming obsolete due to technological advancements.
In fact, about 95% of its cash flow is regulated or contracted. About 75% are indexed to inflation and 65% have no volume risk. Overall, it generates very reliable cash flow to support its dividend.
Since its inception in 2009, BIP has grown its FFO per share at a compound annual growth rate (CAGR) of approximately 16%. This also translated into growth in cash distributions per unit of approximately 10% per annum during the period.
Despite a difficult 2020 due to economic bottlenecks, the global infrastructure company still managed to increase FFO per unit by 2%. The weak growth more than rebounded in the first quarter of 2021, which saw 20% per unit FFO growth, driven by 8% organic growth and its asset rotation strategy.
The company also maintains an FFO payout ratio of around 70% to protect its dividend.
Abundant growth opportunities
Brookfield Infrastructure is never short of growth opportunities. It is a global company with operations on five continents. Therefore, he can always invest where it makes the most sense with high risk-adjusted long-term returns. In addition, it can take advantage of mature assets to redeploy the proceeds into better investments.
For example, in the first quarter, he launched the privatization of $ 5 billion Inter-pipeline, in which it had already acquired a substantial stake of nearly 20% during the pandemic market crash.
During the quarter, it also closed or secured three asset sales that totaled proceeds of US $ 1.7 billion with an after-tax return of 34% per annum and four times the invested capital. At the end of the quarter, BIP had $ 2.6 billion in cash for a potential deployment.
Madness to take away
The management of BIP is a value investor at heart. Therefore, they have never disappointed investors in their goal of achieving a total return on investment of 12-15% over the long term. Investors simply need to buy the quality dividend stocks at a reasonable valuation to get a + 12% CAGR in the long run.
At $ 54.22 per share, the stock is considered to be reasonably priced at a discount of around 8% from analysts’ 12-month average price target. Let’s not forget that BIP also offers an initial return of around 3.8% and increases its cash distribution per share by 5-9% per annum.
Here are some other great businesses that you would want to buy at the right price and keep for eternity.
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This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .
Silly contributor Kay ng owns shares of Brookfield Infrastructure Partners. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS and Brookfield Infrastructure Partners.