Historically, the stock market has been the greatest source of long-term wealth creation, with the S&P 500 delivering a 9.0% compound annual growth rate since its inception in 1871. That means that $1 invested in the market 144 years ago would be worth a staggering $285,436.41 today.
However, even more impressive is the fact that historically many blue-chip dividend growth stocks have done even better. That's because managers of these companies have to be more conservative with their capital allocation strategies in order to both keep their companies and dividends growing.
And in today's world of historically low interest rates, when income investors living off dividends are starved for yield, generous, secure and growing payouts are more important than ever.
Our Dividend Safety Scores identify companies with the safest and riskiest dividend payouts. They flagged major firms such as Kinder Morgan and ConocoPhillips as high-risk dividend stocks before these companies announced dividend cuts. Investors can learn more about how Dividend Safety Scores work and what their real-time track record has been here. We used our Dividend Safety Scores to hunt down seven high-yield dividend stocks with average safety or better.
Read on to learn about seven high-dividend stocks that have what it takes to help you meet your income needs. They also have the potential to generate healthy total returns in the years to come. We own one of these stocks in our Conservative Retirees dividend portfolio, too.
1. Brookfield Infrastructure Partners (BIP) : Yield 4.6%
Brookfield Infrastructure Partners is a limited partnership that went public in 2008. But don't let its young age fool you, because this infrastructure company is managed by Brookfield Asset Management, which has more than 115 years of experience investing in real estate, utilities and infrastructure assets around the globe.
In fact, with $250 billion in assets under management, and a staff of more than 55,000 people in 32 countries, Brookfield Asset Management has an unrivaled ability to find great undervalued infrastructure projects to buy and then "drop down," or sell, to the limited partnership.
In exchange for Brookfield Asset Management's deal-making savvy, Brookfield Infrastructure Partners pays a management fee, and 25% of all marginal funds from operations, or FFO, which is the limited partnership's version of operating cash flow.
Thanks to this symbiotic relationship, Brookfield Infrastructure has grown into one of the world's largest and most diversified utilities. It has more than 40 major, hard-to-replicate assets on six continents including: 17,000 km of natural gas pipelines; 13,900 km of electrical transmission lines in North and South America; 2.6 million electrical and gas connections in the U.K.; 33 ports in North America, the U.K. and Europe; 7,000 cell towers; 5,000 km of fiber-optic lines in France; 16 toll roads in South America and India; the largest coal port in Australia; and Australian and South American railroads.
These assets, almost all of them under long-term contracts or in regulated industries, along with currency hedging, produce a vast and stable stream of free cash flow, what Brookfield calls "adjusted funds from operations", with which to pay its secure and growing distributions.
In fact, in the last quarter Brookfield Infrastructure's AFFO payout ratio was 71.8%, which is actually low for a utility, and means there's plenty of retained cash flow with which to invest in organic asset expansion.
And because Brookfield Asset Management's constantly is finding new deals for it to invest in, Brookfield Infrastructure has been able to grow its distribution at a 12% CAGR since its IPO, including 11% this year. In fact, management's long-term target is 5% to 9% payout growth, and 12% to 15% total returns for investors.
And given Brookfield Infrastructure Partner's current strong liquidity position of $2.5 billion and a slew of upcoming acquisitions that are in the final stages of closing, the limited partnership likely will be able to deliver on that guidance.