Undervalued dividend-paying growth stocks have proven to be the best investments for long-term shareholders. Generally, these stocks trade at a cheap multiple and offer an attractive dividend payout to investors. Further, due to a consistently widening earnings base, the companies have the potential to increase dividends over time, enhancing the effective yield significantly.
In addition to dividends, quality growth stocks also generate returns via capital gains. For instance, one such dividend stock trading on the TSX is Brookfield Infrastructure Partners, which went public in January 2008. In the last 16 years, BIP stock has returned 300% to shareholders in capital gains. After adjusting for dividends, total returns are much higher at 1,230%.
Currently valued at $19.6 billion by market cap, BIP stock is down 26% from all-time highs, increasing your forward yield to 5.2%. Let’s see why you should invest in this undervalued gem today.
Brookfield Infrastructure Partners is among the largest owners and operators of infrastructure networks globally, facilitating the movement and storage of energy, water, data, passengers, and freight.
It is one of the few pure-play infrastructure companies trading on the equity markets that invests in premier assets, allowing it to enjoy stable cash flows and high margins.
Despite an uncertain macro backdrop, BIP reported funds from operations, or FFO, of US$0.79 per unit, an increase of 17% year over year in the fourth quarter (Q4) of 2023. In 2023, its FFO rose by 10% to US$2.3 billion.
We can see that BIP stock is priced at seven times trailing FFO, making it one of the cheapest dividend stocks trading on the TSX.
In the last 12 months, BIP sold US$1.9 billion of assets and invested US$2 billion in acquisitions. The company obtained a second investment-grade credit rating and maintained a strong balance sheet.
Due to its strong financials, BIP increased its annual dividends to US$1.62 per share, an increase of 6% year over year, its 15th consecutive year of dividend increases.
BIP completed three acquisitions last year and recently announced plans to acquire 40 data centre sites from Cyxtera, a company wrestling with bankruptcy. The transaction includes the acquisition of real estate tied to the data centres and the contribution of 10 retail co-located sites Brookfield already owns.
The new platform will be a retail co-location data centre provider with more than 330 megawatts of capacity deployed across high-demand areas in North America. The purchase price for the acquisition is US$1.3 billion, implying a forward EBITDA (earnings before interest, tax, depreciation, and amortization) multiple of eight times. So, the acquisition should increase BIP’s EBITDA by US$162.5 million in the next 12 months.
Given BIP’s dividend payout of $2.17 per share, you need to purchase 461 shares of the company to earn $1,000 in annual dividends. At the current price, 461 BIP shares will cost you over $19,000, which is a huge sum to allocate in a single stock. Instead, you should identify other such dividend-growth stocks to diversify your portfolio and lower overall risk.
