Identify a list of solid dividend stocks that grow their dividends over time. Ideally, these dividend stocks should outperform at least the market (if not also their respective industries) in the long run. Aim to add shares when the dividend stocks are cheap. And then you’d be pretty much set for making top-notch passive income with dividend stocks.
Its track record of dividend growth is set to continue
One dividend stock that fit very well is Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP). Since it was spun off from Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM), BIP has increased its cash distribution every single year. BIP’s 10-year dividend growth rate is 9.9%.
So far this year the company is making excellent progress — funds from operations (“FFO”) per unit growth was 11% in the first half of the year.
In the Q2 2022 letter to unitholders, management wrote:
We maintainour favorable outlook despite softening macroeconomic conditions, as our business tends to perform well throughout all business cycles. We expect our portfolio companies to generate reliable cash flow in all market conditions, given the essential services they provide and the highly regulated or contracted revenue frameworks they operate under. Many of our businesses are also well positioned to benefit from increased expenditures related to decarbonization and digitalization trends, which are only starting to show in our results.
The dividend stock outperforms
Since inception in 2008, and in the last one, three, five, and 10 years, BIP stock has outperformed the Canadian stock market and the utility industry. The below graph displays the 10 year transformation of an initial $10,000 investment.
Total Return Level data by YCharts
One reason BIP outperforms is that it owns, invests, an operates a global portfolio of high-quality, long-life infrastructure assets. It’s a value investor that can invest in the geographies or sectors that are most strapped for cash. Specifically, it has an ongoing capital recycling program to identify mature assets that it can sell.
In Q2 2022, it noted that it secured almost US$900 million of proceeds from the sale of four mature businesses at attractive valuations. You can read about its recent asset dispositions here on page 4.
Buy when the dividend stock is attractive
We last added to our BIP position during the pandemic market crash in March 2020 when the quality diversified utility’s yield was very attractive. There was a lot of fear in the market at the time, though, which is why you see the spike in its yield in the graph below.
BIP.UN Dividend Yield data by YCharts
Feel free to share if you have other dividend stocks for making top-notch passive income.
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Disclosure: As of writing, we own Brookfield Infrastructure.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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