This year has been a tough one for investors. Most stocks are down sharply due to concerns that rising interest rates to combat inflation could cause an economic downturn. This performance can make investors wonder whether there are any safe investments.
While stocks aren’t risk-free, some are much safer than others. Two stocks that offer an abundance of safety features are Brookfield Infrastructure (BIPC 0.84%) (BIP 0.70%) and Enbridge (ENB -0.37%).
Multiple safety features reduce risk
Brookfield Infrastructure owns a globally diversified portfolio of infrastructure businesses across the utility, midstream, transportation, and data sectors. That diversification helps reduce risk. Meanwhile, the types of businesses it owns also help lower risk. Brookfield’s operations generate very stable cash flow, with 90% coming from long-term contracts or government-regulated rate structures. In addition, 70% of those structures feature inflation indexation (enabling Brookfield to raise rates as inflation rises), and 70% have no volume risk (i.e., Brookfield gets paid even if the customer doesn’t use the contracted capacity). These factors help insulate its cash flow from economic downturns.
Brookfield complements its low-risk business model with a conservative financial profile. The company has a strong investment-grade credit rating, primarily long-term fixed-rate debt, and ample liquidity. It also has a conservative dividend payout ratio of 60% to 70% of its cash flow, enabling it to retain earnings to fund expansions. The infrastructure giant also recycles capital, selling mature assets to fund higher-returning new investments to maintain a strong balance sheet.
The company also has lots of growth ahead. Brookfield’s capital recycling strategy and organic growth drivers have its funds from operations (FFO) on track to grow at a double-digit per share rate through next year. Meanwhile, it sees 6% to 9% annual organic growth over the long term, propelled by inflation-driven rate increases, volume growth as the global economy expands, and development projects. It could grow even faster as it secures more value-enhancing acquisitions. That should give it plenty of power to deliver on its plan of growing its 3.2%-yielding dividend at a 5% to 9% annual rate in the coming years. Brookfield has increased its payout for 13 straight years since its inception in 2008.
Low-risk growth ahead
Enbridge has a similar low-risk business model. The company operates pipelines and utility-type assets in North America and Europe that generate steady cash flow backed by long-term contracts and government-regulated rate structures. Overall, 98% of its earnings come from those stable sources, while 80% also feature inflation protections.
Meanwhile, Enbridge pays out a reasonable 60% to 70% of those stable earnings via a dividend that currently yields 6.4%. It also boasts a strong investment-grade balance sheet. That gives it billions of dollars of annual financial flexibility to invest in expansion projects, make acquisitions, and repurchase shares.
The company currently has a multi-billion-dollar backlog of expansion projects under construction. They provide it with clear visibility to grow its cash flow at a 5% to 7% annual rate through at least 2024. Meanwhile, it has secured several expansions this year that will come online in the 2025 to 2027 time frame, positioning it to continue growing at a healthy rate for years. That should enable Enbridge to continue growing its dividend, which it has done for the last 27 consecutive years.
Safety amid the uncertainty
Brookfield Infrastructure and Enbridge have multiple features that make them safer than other investments. Their lower-risk business models generate stable cash flow. They also have conservative financial profiles and visible growth prospects. That should enable them to continue growing their earnings and dividends in the future, which should allow them to produce attractive returns for their investors. Because of that, they’re great options for those seeking safer investments in today’s uncertain market.
Matthew DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.