If I could buy just one dividend stock in September, this would be my top choice

I buy a lot of dividend stocks. I focus on dividends because they have been proven to be powerful wealth creators. Over the past 50 years, dividend payers have outperformed the average stock in S&P500 — Their average annual total return of 9.2% beats the 7.7% generated by the equally weighted S&P 500. Dividend-growing and dividend-initiating companies did most of the hard work, posting an annual return of 10.2% compared with 6.7% for companies that kept their dividend policies unchanged.

Given the strength of dividends, I tend to invest in a few dividend stocks each month. However, if I had to choose just one to buy in September, it would be Brookfield Infrastructure (NYSE:BIPC)(NYSE: BIP)Here’s why.

A Story of Dividend Growth and Wealth Creation

Brookfield Infrastructure was formed about 15 years ago as a spin-off from the company now known as Brookfield. It has been a phenomenal wealth creator during that period. The global infrastructure giant has increased its dividend each year, increasing its payout by a 9% compound annual rate. Not only has the stock outperformed the S&P 500 during that period, with an average annual total return of 14.9% compared with the index’s average return of 10.8%, but its dividend is now yielding about three times that, yielding just under 4% at Friday’s closing price.

Several factors have helped the company achieve such strong dividend and earnings growth. One of the most important is the overall stability of its portfolio. Brookfield Infrastructure’s businesses generate stable cash flow, secured by long-term contracts and government-regulated rate structures. The company says 85% of its funds from operations (FFO) are inflation-protected or indexed to inflation. This provides a stable stream of cash flow that typically grows 3% to 4% annually.

Brookfield Infrastructure also benefits from a strong financial profile. It has a reasonable dividend payout ratio (60% to 70% stable cash flow), a strong investment balance sheet, and plenty of liquidity, which it routinely replenishes through capital recycling. The company uses its financial flexibility to invest in expansion projects and make acquisitions. These catalysts and other organic drivers have enabled Brookfield Infrastructure to grow FFO per share at a rate of 15% per year since inception.

Many catalysts for growth

The company expects to continue to grow dynamically in the future. It has positioned its portfolio to capitalize on three major investment megatrends: digitalization, decarbonization, and deglobalization. Each of these has a long way to go.

Brookfield Infrastructure has built a large data infrastructure platform to capitalize on the digitalization megatrend. It has acquired several data center development platforms, cell tower operators, and fiber optic networks. The company has also partnered with Intel build two new semiconductor plants in the U.S.

The company has also acquired several companies in the transportation, midstream energy and utilities sectors to capitalize on two other major megatrends. It typically acquires extensible platforms that it can grow by investing in capital projects and making additional acquisitions. It currently has a record $7.6 billion in capital backlog that it expects to complete in the next two to three years. In the meantime, it expects M&A activity to pick up in the second half of this year, adding a potential accelerator of growth for 2025 and beyond.

Brookfield Infrastructure estimates that its platforms can organically grow FFO per share by 6% to 9% per year through a combination of inflation-driven interest rate growth, volume growth as the global economy recovers, and development projects. In the meantime, it sees accretive acquisitions funded by capital recycling pushing FFO growth into double digits. This forecast easily supports the company’s plan to increase its dividend (which is already yielding 4%) by 5% to 9% per year.

Powerful Total Return Potential

Brookfield Infrastructure has an exceptional record of increasing its dividend and shareholder value. This should continue into the future. It is expected to increase its dividend payout by 5% to 9% annually, while growing cash flow per share at a rate of over double digits. This should fuel it to generate average annual total returns in the mid-teens. This solid total return potential from such a low-risk company is why I would choose Brookfield Infrastructure over all others if I could buy just one dividend stock in September.

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Matt DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Intel and has the following options: long January 2025 $30 call options on Intel stock, short January 2025 $30 put options on Intel stock, short November 2024 $45 call options on Intel stock, and short October 2024 $45 call options on Intel stock. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: short November 2024 $24 call options on Intel stock. The Motley Fool has a disclosure policy.