Written by Kay Ng at The Motley Fool Canada
The Tax-Free Savings Account (TFSA) is the perfect place to house attractive dividend stocks for good dividend income and growing your wealth. Here are a couple of interesting utility stocks that might pique your interest.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) is the global infrastructure company of Brookfield Corporation, which owns a meaningful interest of 27% in the former. Because of its close relationship with the parent company, Brookfield Infrastructure is able to originate unique investment opportunities through the parent.
It has a growing backlog of investments, which increased by 41% to US$6.3 billion in 2022. The backlog includes projects across all the sectors it operates in — utilities, transport, midstream, and data infrastructure assets.
For example, late last year, Brookfield partnered with Intel to construct a US$30 billion semiconductor manufacturing facility in Arizona. Brookfield Infrastructure’s relationship with Brookfield allowed it to contribute about US$3.6 billion to take a share in the investment.
Ultimately, Brookfield Infrastructure targets long-term total returns of 12-15% per year. Its 10-year total returns outperformed with returns of about 16.9%, while its five-year total returns of 11.8% were close to its low target. Notably, the stock declined more than 20% in the last 12 months. So, it has a better chance of outperforming the high target of 15% over the next few years.
At $44.25 per unit, the utility stock is undervalued by about 27%, according to the 12-month analyst consensus price target. It also offers a cash distribution yield of 4.7%, which is quite decent because it aims to healthily increase the distribution by 5-9% per year. Since 2009, it has increased its cash distribution by close to 9.6% per year or 3.6 times its dividend!
This is the kind of stock that you can store away in your TFSA and enjoy decades of compounded growth because there’s a strong demand for infrastructure investment globally in both developed and emerging countries.
Brookfield Renewable Partners
If you trust the Brookfield management, and you believe in the long-term prospects of renewable power, you can also consider Brookfield Infrastructure’s sister company, Brookfield Renewable Partners (TSX:BEP.UN), for your TFSA.
Like Brookfield Infrastructure, Brookfield Renewable has corrected substantially in a higher interest rate environment. Specifically, the utility stock has fallen more than 29% in the last 12 months. In the last week, renewed interest in the stock bid it up by close to 5%.
Brookfield Renewable is a good way to gain exposure in renewable power investing. Globally, it owns and operates the key technologies of the sector in hydro, wind, solar, distributed energy, and sustainable solutions. It also provides a growing cash distribution that it intends to increase 5-9% per year.
At $35.64 per unit, the utility stock is discounted by about 26%, according to the 12-month analyst consensus price target. It also offers a juicy cash distribution yield of 5.1% for starters. For your reference, its 10-year cash distribution growth rate is 5.7%.
Brookfield Renewable sees the potential to quadruple its operating assets with a particular focus on solar utility, wind assets, and distributed generation, storage, and sustainable solutions. So, the stock could reward long-term investors handsomely.
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Fool contributor Kay Ng has positions in Brookfield, Brookfield Infrastructure Partners, and Brookfield Renewable Partners. The Motley Fool recommends Brookfield, Brookfield Corporation, Brookfield Infrastructure Partners, Brookfield Renewable Partners, and Intel. The Motley Fool has a disclosure policy.