My primary financial goal is to get into a position where I can retire early. It's not that I don't want to work; I just don't want the pressure of having to earn income to support my family. My strategy is to grow my passive income to the point where it covers my recurring expenses.
I make strides toward that goal each month by investing in passive income-generating vehicles. High-yield dividend stocks are a big part of that strategy. Two of my favorite income-producing stocks are Enbridge(NYSE: ENB) and Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP). Here's why I bought more of each in July and plan to continue adding to my positions in August.
The fuel to continue growing its prodigious payout
Enbridge offers a high-octane income stream. The Canadian pipeline and utilitycompany'spayout currently yields more than 7%. That's several times higher than the dividend yield of the S&P 500 of around 1.3%.
That monster payout is on a very sustainable foundation. Enbridge generates very stable cash flow, with 98% coming from cost-of-service agreements or long-term contracts. Meanwhile, it pays out 60% to 70% of its stable cash flow in dividends. That provides it with a solid cushion while allowing it to retain a meaningful amount of its cash flow to fund new investments. Enbridge also has a strong investment-grade credit rating, providing additional financial flexibility.
The company has taken steps to enhance the long-term sustainability of its already very durable cash flow this year. It's acquiring three stable natural gas utilities from Dominion. It also entered into a joint venture to swap an interest in a pipeline development project for operating assets in a move that will boost its cash flow while reducing future capital costs.
Those deals added to Enbridge's already robust organic expansion project backlog, which includes pipeline expansions, storage capacity additions, utility expansions, and new renewable energy projects. Those investments provide it with lots of growth visibility. Enbridge expects to grow its cash flow per share by 3% annually through 2026 and by around 5% per year after that.
That should give it the fuel to continue increasing its dividend by around 3% to 5% annually. Enbridge has grown its payout annually for the last 29 consecutive years.
Its robust growth should continue
Brookfield Infrastructure's dividend currently yields more than 4%. The global infrastructure operator has grown its high-yielding dividend at a 9% annual pace since its formation 15 years ago.
The company's current payout level is on a very sustainable foundation. Brookfield generates very stable cash flow, with 90% backed by long-term contracts and government-regulated rate structures. Meanwhile, 85% is either protected from or indexed to inflation. Brookfield also boasts having a reasonable dividend payout ratio of 60%-70% and a strong investment-grade balance sheet.
Brookfield believes a trio of organic drivers will grow its cash flow per share by around 6% to 9% annually over the long term. They include inflation-linked rate increases, volume growth as the global economy expands, and capital projects. The company currently has a record backlog of capital projects, including several data center developments, two semiconductor fabrication plants, and many cell tower installations. The company's organic growth drivers alone should support its plan to increase its dividend by around 5% to 9% annually over the long term.
In addition, the company expects its accretive capital recycling strategy to help drive its growth rate into the double digits. It aims to invest $1.5 billion annually over the next several years in accretive deals funded with asset sales. Brookfield has already raised $1.2 billion through its capital recycling initiatives this year. Meanwhile, it has invested an additional $365 million into increasing its stake in its integrated Brazilian rail and logistics provider. It also plans to invest about $150 million into an Indian telecom tower acquisition later this year. With ample liquidity, it has the financial flexibility to continue making new investments as opportunities arise.
High-yielding and steadily rising payouts
Enbridge and Brookfield Infrastructure perfectly align with my passive income strategy. They pay high-yielding dividends that are on a very sustainable long-term foundation. They also have excellent records of increasing their payouts, which seems very likely to continue in the coming years.That's why I added to my positions in July and plan to add even more this August. Their growing income streams will help me eventually reach my goal of financial independence through passive income.
Should you invest $1,000 in Enbridge right now?
Before you buy stock in Enbridge, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Enbridge wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $683,777!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 29, 2024
Matt DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners and Dominion Energy. The Motley Fool has a disclosure policy.
