Tag Archives: NYSE:BIP

The Best 3 Places To Look For Safe Dividend Income

If history gives a hint about the future, it indicates that companies in certain industries tend to generate stable earnings or cash flows that lead to stable dividends.

If we choose the quality companies from these industries, we can then build a diversified portfolio that generates a secure, growing income stream. Below, I list some possibilities.

Utilities: A Must-Own Sector

Earnings generated by utilities are relatively stable because people need to use electricity, gas, and water, etc. no matter if the economy is doing well or not.

One utility that came out strongly from the last recession was Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP). Since 2009 it has been a five-bagger.

Brookfield Infrastructure is a rock solid utility, which owns and operates a global, quality portfolio of infrastructure assets, including toll roads, railroads, ports, pipelines, and telecom towers.

Its trusted management, Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM), employs value investing and actively recycles mature assets for higher returns. Because management owns 30% of the partnership, retail unitholders can expect the management to be unitholder-friendly.

Indeed, Brookfield Infrastructure has increased its distribution every year since 2009. Going forward, it gives the guidance to grow its distribution by 5-9% per year. Currently, it offers a yield of 4.5% to start.

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Which Utilities to Buy On The Utilities Dip?

I notice some utilities have dipped as much as 20% from their 52-week highs. The dip maybe a rotation of funds out of the typically slower growth utilities sector for the purpose of profit-taking, or maybe investors are worried that interest rate hikes will cause the typical high-yielding utilities to dip further.

Because of the dip, I reviewed the 30 utilities in The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) to see if there are treasures to be found. I filtered down to one utility that has had stable, growing earnings for more than a decade.

Southern Co, a Stable Utility with 5% Yield

Here, I present Southern Co (NYSE:SO), which has a S&P Credit Rating of A, sustainable debt levels, and is trading close to a price-to-earnings ratio (P/E) of 15 priced around $43 per share today.

Southern Co. fundamental analysis graph

I believe it’s fairly priced today, hitting the orange earnings line. The blue normal P/E line indicates that it has historically traded at a P/E of 16.

Since 2005, the company has increased dividends by 3-4% per year. I’d say that’s keeping pace with inflation. With a juicy yield of 5%, and growing say at 3% going forward, it should keep pace with general market returns of 7%.

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