Investors looking for reliable income have been spoiled for choice lately, but not all returns are created equal. As interest rates ease, fixed income and guaranteed investment certificates (GICs) may soon offer less value for money. That’s why many Canadians are returning to infrastructure dividend stocks, which offer the rare mix of stability, growth and consistent cash flow. Right now, these stocks may be the ideal place to build a monthly income that keeps pace with inflation and market fluctuations.
Why infrastructure?
What makes infrastructure so attractive is its built-in resilience. These companies own the hard assets the world cannot live without, such as toll roads, pipelines, utilities, data centers, ports and renewable energy networks. Demand for these services does not decrease when markets do. Whether people are driving, streaming or heating their homes, infrastructure revenues continue to flow. That translates into predictable cash flow and, often, contracts indexed to inflation.
The real magic of infrastructure stocks comes from that inflation link. Many assets are covered by contracts that automatically adjust for inflation or allow interest rate increases by regulators. That’s powerful in a world where the cost of living is still high. And as borrowing costs ultimately decline, infrastructure managers should see their financing pressures ease, freeing up even more money for investors.
Of course there are risks. These companies are capital intensive and their higher debt burden makes them sensitive to interest rate changes. A sharp rise in interest rates or a delay in project approvals could hit returns. But that pressure is already easing. Add to that steady global demand for renewables, data infrastructure and energy transportation, and the growth trajectory remains strong.
Consider NPI
With all this in mind, let’s consider whether Northland Power (TSX:NPI) could be a good dividend stock to buy for a stable monthly income. NPI is a renewable energy and energy infrastructure company. The portfolio includes offshore wind energy, onshore wind energy, solar energy, energy storage and natural gas and utilities. It also has development pipelines in several geographies, mainly in Europe and Asia.
What makes NPI especially attractive to income investors is that it pays dividends monthly, not quarterly or semi-annually. Currently, it has a monthly dividend of $0.10, or $1.20 per year. At the time of writing, this amounts to an annual return of 4.84%. What’s more, shares have also recovered, up 12% over the past year! This is likely due to strong profits, with operating cash flow rising to $451 million from $171 million the year before.
Now, no investment is perfect. Wind speeds, weather patterns, grid curtailments and outages of renewable energy sources cause variability. This means that income is more sensitive to external factors than, for example, a regulated utility company. The dip in the second quarter is a memory. Large projects are capital intensive and are often financed with debt. Rising interest rates or refinancing stress can erode margins or increase costs. However, as it invests in new projects, renewables, storage and development pipelines, there are benefits if these succeed. That means income can grow (or at least sustain) over time.
Silly takeaway
If your goal is to create a reliable monthly income, few industries tick as many boxes as infrastructure. You get exposure to essential assets, predictable cash flow, inflation protection and generous, often growing dividends. While GICs and bonds begin to lose their appeal in a lower interest rate environment, infrastructure dividend stocks can continue to pay you, and even more, long after other sources of income have declined. It’s the kind of foundation that can anchor a portfolio for decades. And that’s why if there’s only one dividend stock I would consider today, it will be NPI stock.
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