It seems that rising inflation is not going to go away these days. The latest Consumer Price Index (CPI) report showed that prices increased by 3.5% year-on-year. This was higher than expected, showing an acceleration in price growth. Inflation remains above the Federal Reserve’s target of about 2% per year.
Although higher inflation is bad for the economy as a whole, it can benefit some businesses. Brookfield Renewable Energy (NYSE:BEP)(NYSE:BEPC), Brookfield Infrastructure (NYSE:BIPC)(NYSE:BIP)And Marathon Oil (NYSE:MPC) Stand out from these three Motley Fool contributors for their ability to profit from higher inflation. This gives these energy stocks the fuel to pay higher dividends, providing their investors with income streams that outpace inflation.
An inflation-driven surge
Matt DiLallo (Brookfield Renewable Energy): Although high inflation is a challenge for many companies, it is a boon for Brookfield Renewable. The renewable energy producer sells 90% of the electricity it produces under fixed-price contracts with an average remaining duration of 13 years. These agreements provide the company with very predictable cash flow.
Most of these contracts include clauses linking rates to inflation (70% of its income is indexed to inflation). This stable and ever-increasing cash flow puts its high-yielding dividend (recently above 6%) on a very solid footing.
Brookfield expects inflation indexes to generate 2% to 3% annual growth in its funds from operations (FFO) per share over the next five years, assuming inflation moderates. However, higher inflation in the near term could lead to annual FFO per share growth of up to 4%.
Inflation is not Brookfield Renewable’s only growth driver. It expects margin-enhancing activities (e.g., providing ancillary services and capturing higher market prices on its non-contracted production) and its massive development pipeline to generate an additional 5-9% annual growth in FFO per share.
Additionally, mergers and acquisitions activities are expected to provide further impetus. The company estimates that these catalysts should allow it to increase its FFO per share by more than 10% per year through at least 2028.
Brookfield’s growth engines should provide it with enough power to continue increasing its high-yielding dividend. The company aims to increase the payout by 5% to 9% per year. This should allow it to generate revenue growth above inflation in the coming years, even if inflation remains high.
Designed for all savings
Jason Hall (Brookfield Infrastructure): It may seem unoriginal that my colleague Matt and I chose two subsidiaries of the same parent company. But they are very different from each other, yet similar in the ways that matter most in answering this call.
With Brookfield Infrastructure, you benefit from a set of world-class assets that connect the modern world, including energy (moving and storing electricity, natural gas and other products), data (data centers, broadband and wireless) and the transport of people. …
