The recent rise in inflation doesn't seem to be slowing down. According to the latest Consumer Price Index (CPI) report, prices rose 3.5% year-on-year. This exceeded expectations and showed an acceleration in price growth. Inflation remains above the US Federal Reserve's annual target of about 2%.
While it's high inflation Although it is bad for the economy as a whole, it can be beneficial for certain companies. Brookfield Renewable (New York Stock Exchange: BEP)(NYSE: BEPC), brookfield infrastructure (NYSE:BIPC)(NYSE:BIP)and marathon oil (NYSE:MPC) These three Motley Fool contributors stand out for their ability to capitalize on rising inflation. This drives these energy stocks to pay high dividends, providing investors with a source of income that beats inflation.
boost due to inflation
matt dilalo (Brookfield Renewable): While rising inflation is difficult for many companies, it is a boon for Brookfield Renewables. The renewable energy producer sells 90% of his generated power under fixed price contracts with an average remaining term of 13 years. These contracts provide the company with highly predictable cash flows.
Most of these contracts include clauses tying interest rates to inflation (70% of returns are indexed to inflation). This stable and steadily increasing cash flow gives its high-yield dividend (recently over 6%) a very solid foundation.
Brookfield expects the inflation escalator to increase operating capital by 2% to 3% annually (FFO) Earnings per share over the next five years, assuming moderate inflation. However, in the short term, inflation could rise, increasing FFO per share by up to 4% annually.
Inflation isn't the only growth driver for Brookfield Renewables. The company expects annual FFO per share growth to increase by an additional 5% to 9% due to margin expansion activities (such as providing ancillary services and capturing higher market prices for off-contract production) and a large development pipeline. I predict that.
On top of that, merger and acquisition activity should provide further support. The company believes these catalysts will allow it to grow FFO per share by more than 10% annually until at least 2028.
Brookfield's growth drivers should provide ample leverage to continue increasing its high dividend payout. The company aims to increase its dividend by 5% to 9% annually. This should allow income growth to outpace inflation over the next few years, even if inflation remains high.
Built for any economy
jason hall (Brookfield Infrastructure): It may seem unoriginal that my colleague Matt and I chose two subsidiaries of the same parent company. But while they are very different from each other, they are similar in the most important ways in answering this call.
With Brookfield Infrastructure, you get a collection of world-class assets that connect the modern world, including energy (moving and storing electricity, natural gas, and other goods), data (data centers, broadband, wireless), people transportation, and more. can. And the product.
Investors looking to both reduce the impact of inflation and potentially profit from it should consider this business. First, infrastructure assets are extremely important, regardless of economic conditions. Even as stubborn inflation weighs on capital spending and consumer spending, the company's operating assets will remain active and generate large amounts of cash.
Additionally, many of the company's asset pricing structures factor in inflation, allowing it to raise prices as inflation rises further.But at the same time, its operating costs are huge few Affected by inflation. Fixed costs are high, but the variable aspects of business operations do not track inflation exactly. This means investors are left with more cash flow.
However, market misconceptions about the business have caused the stock to decline over the past year, primarily due to concerns about rising interest rates. As a result, smart investors with a long-term horizon can buy this business at what I think is the price. Most attractive valuation in years.
With a dividend yield well above 5% and a track record of raising dividends and delivering strong returns over the past 20 years, I think now is definitely the time to buy Brookfield Infrastructure.
Stay ahead of inflation with one of the fastest growing dividends in the energy industry
Tyler Crow (Marathon Petroleum): One of the misconceptions about investing to avoid inflation is choosing high-yield stocks. Although they currently offer large cash payouts, high-yield stocks tend to have slower rates of dividend growth. These interest rates are often slower than the pace of inflation.
Therefore, rather than looking for high yields, investors are better off looking for dividend payers with a long track record of growing dividends at high rates. Over the past 10 years, only 25 of his companies in the energy sector have grown by more than 10%. Marathon Petroleum is one such company, with its dividend increasing 14.6% annually over that period.
It seems counterintuitive that dividends would grow rapidly in a non-growth industry like oil refining. But with little opportunity to spend on growth, Marathon returns virtually all of its free cash flow to investors through dividends and stock buybacks.
Over the past decade, the company has reduced its outstanding shares by 35% (including a significant all-stock acquisition in 2019). A reduction in the number of shares means the company can increase its dividend per share without spending additional funds each quarter.
Demand for refined petroleum products will remain high for decades to come, providing ample opportunity for the company to pay investors more dividends and buy back stock. If you want to beat inflation, few stocks can do it better than Marathon Petroleum.
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jason hall Positions are available at Brookfield Infrastructure, Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners. matt dilalo Positions are available at Brookfield Infrastructure, Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners. tyler crow Positions available at Brookfield Infrastructure Partners and Brookfield Renewable. The Motley Fool has a position in Brookfield Renewables and recommends Brookfield Renewables. The Motley Fool recommends Brookfield Infrastructure Partners and Brookfield Renewable Partners. The Motley Fool has Disclosure policy.
Inflation is not going away: 3 dividend stocks to cash out Originally published by The Motley Fool