I own a fair number of stocks, primarily those that pay dividends. I really appreciate the passive income they generate, and, historically, dividend stocks have offered much better returns than their non-dividend counterparts.
Here are my three favorite dividend stocks: Brookfield Infrastructure, Enterprise Products Partners, and Realty Income. I already hold substantial positions in all three, but the thought of doubling down on them is tempting. Here’s why:
Steady growth in the future
Brookfield Infrastructure ticks all the boxes for a solid dividend investment. It produces reliable cash flows that support a current yield of about 4.8%. Approximately 85% of its revenues come from long-term fixed-rate contracts or government-regulated frameworks that help shield their income from inflation.
This diversified infrastructure operator also boasts strong financial health. With a payout ratio of around 60% to 70% of stable cash flow and a robust investment-grade balance sheet, Brookfield has the financial leeway to keep growing its business and dividends.
Looking ahead, Brookfield Infrastructure has promising growth potential. Cash flow per share is projected to rise by over 10% annually, driven by inflation-linked rate increases, expansion projects, and acquisitions. This could see dividend growth of 5% to 9% annually. Interestingly, they’ve raised their dividend for 16 consecutive years, averaging about 9% annually.
More waves of growth coming in the pipeline
Enterprise Products Partners appears strong as well. It’s a Master Limited Partnership (MLP) that sends Schedule K-1 tax forms to its investors, currently providing a yield of around 5.6%. The company has successfully increased its volumes for 27 straight years.
This MLP is ideally positioned to maintain its high-yield dividends. It has a solid financial stance, generating stable cash flows largely based on long-term fixed-rate contracts or regulated fees. Last year, it produced enough cash to cover distributions 1.7 times over, allowing for significant reinvestment. Its balance sheet is reportedly the strongest in the energy midstream sector.
Enterprise completed $6 billion in growth capital projects just in the last half of the previous year, which should significantly enhance cash flow by 2026. Plus, there’s a further $4.8 billion expansion in the pipeline, expected to start commercial service soon, which should provide additional growth.
Model of consistency
Realty Income stands out as a quintessential income stock. As a real estate investment trust (REIT), it offers a high-yield monthly dividend of around 5.3%, increasing regularly. Since its public debut in 1994, Realty Income has raised its dividend 134 times and boasts a compound annual growth rate of 4.2%. Remarkably, it has increased dividends for 31 years straight.
The company has a diversified real estate portfolio with long-term triple net leases, ensuring stable cash flows since tenants cover all operating costs. Additionally, REITs typically maintain conservative dividend payout ratios (75%) and possess strong balance sheets, giving them the flexibility to invest in more income-generating properties.
This year, Realty Income plans to invest $8 billion into expanding its real estate holdings. There’s no shortage of opportunities, with an estimated $14 trillion potential in net lease properties across the U.S. and Europe.
Core income holdings
Ultimately, Brookfield Infrastructure, Enterprise Products Partners, and Realty Income encompass all the qualities I seek in a dividend stock. They’re financially sound, pay attractive dividends, and are positioned for future growth. If I had the cash on hand, I wouldn’t hesitate to increase my investment in any of these three now.
