Examining Dividend Growth Strategies: A Look at Toronto-Dominion Bank and Brookfield Infrastructure Partners

Investing in quality dividend growth is a well-regarded strategy for building long-term wealth and generating a passive income stream. A key aspect of this strategy is identifying companies with a robust history of growing their dividend payouts, which can significantly enhance the effective yield over time. Among such companies is the Toronto-Dominion Bank, commonly known as TD Bank.

TD Bank, a prominent name on the TSX, has distinguished itself by providing market-beating returns. Over the past two decades, the bank’s stock offers shareholders a total return of 268%. However, when accounting for dividend reinvestments, the cumulative returns surge to an impressive 675%.

The bank has a strong track record of increasing its dividends, managing a compound annual growth rate of over 10% over the last 28 years. As of 2024, TD Bank’s annual dividend stands at $4.08 per share, a substantial increase from $0.25 per share in 1996. This period has included several economic downturns, such as the dot-com bubble and the COVID-19 pandemic, demonstrating the bank’s resilience.

The Canadian banking sector’s high regulation provides TD and its counterparts with a wide economic moat and considerable stability. The conservative lending practices employed by these banks have enabled them to maintain strong liquidity and continue paying dividends amidst economic challenges. Currently, TD Bank stock is considered undervalued at less than 10 times earnings, potentially offering investment upside, particularly if future interest rate cuts improve lending conditions in Canada.

Despite its strengths, replicating past successes might be challenging for TD Bank going forward. As an alternative, Brookfield Infrastructure Partners is another dividend-focused entity that merits consideration. Having been valued at $21.6 billion, Brookfield Infrastructure boasts an annual dividend of US$1.62 per share, reflecting a yield exceeding 4.5%. These distributions have climbed from US$0.47 per share in 2008.

According to recent reports, Brookfield Infrastructure posted funds from operations (FFO) of US$608 million in Q2 2024, up from US$552 million the previous year, resulting in an FFO per unit of US$0.77. This marks a sustainable payout ratio of 68%. Over the last six months, FFO per unit has increased by 10% year over year. Brookfield’s portfolio includes sectors such as utilities, transportation, data centers, and energy midstream, which produce cash-generating assets.

Brookfield Infrastructure’s strategy is underpinned by highly regulated or contracted cash flows, allowing it to aim for annual dividend growth between 5% and 9%, aligning with FFO rises. Over the past decade, its dividends have grown at a compounded annual rate of 8%. The company’s future growth is bolstered by deploying US$620 million in growth capital expenditures aimed at expanding its utilities and other business segments’ capacities.