Inflation continues to be persistently high. The consumer price index (CPI) rose 6% last month compared to last year’s rate. While that was the smallest annualized increase since September 2021, it’s still quite high.
High inflation is bad news for many companies because higher costs affect their profit margins. However, it benefits others. Three companies getting an inflation-driven boost these days are Brookfield Infrastructure (BIP -0.46%) (BIPC -1.73%), Gladstone Land (LAND -2.98%), and W. P. Carey (WPC -1.21%). If inflation remains elevated, they could help insulate your portfolio.
Inflation-powered dividend growth
Brookfield Infrastructure is a global infrastructure operator. The company owns a diversified portfolio of infrastructure assets across the utility, energy midstream, transportation, and data sectors.
Government-regulated rate structures or long-term contracts support 90% of the revenue generated by those assets. A key feature of those agreements is that 70% of its earnings come from contracts that set (or index) rate increases based on the inflation rate; another 10% feature inflation protections. That means Brookfield benefits from inflation.
The company estimates that the inflation indexation features of its existing contracts will help drive 3% to 4% growth in its funds from operations (FFO) per share each year. With inflation running hotter these days, it’s getting an even bigger inflation-driven boost. The company’s organic growth rate was 10% last year, due in part to elevated inflation. Economic growth, expansion projects, and acquisitions also help drive Brookfield’s growth in FFO per share.
Those growth catalysts enabled Brookfield Infrastructure to increase its dividend by 6% earlier this year. The company expects that those drivers will allow it to grow its payout (which now yields 3.5%) at a 5% to 9% annual rate over the long term. That means it should be able to deliver passive income that grows by at least the inflation rate, if not faster.
Growing along with inflation
Gladstone Land is a farmland REIT. The company offers land to farmers primarily under long-term net leases. That makes the tenant responsible for inflation-driven costs like maintenance expenses, real estate taxes, and insurance. Many of its leases feature annual escalation clauses and upward market resets that benefit from property inflation. Some leases also have participation features, giving Gladstone a cut of a farm’s gross revenue, which allows it to capitalize on food inflation.
The company continues to steadily expand its portfolio. Last year, Gladstone bought five farms for $65.1 million. All the leases contained provisions such as annual rental escalations, CPI-linked adjustments, or participation rents that will enable it to collect growing rental income from those farms for years to come.
Those factors drive the company’s dividend. Gladstone Land’s goal is to raise cash distributions to investors at a pace that matches or exceeds the inflation rate over the long term. The company has increased its distribution 29 times over the last 32 quarters, and by 53% overall.
Inflation-driven rent growth
W. P. Carey is a diversified REIT that owns operationally critical properties net-leased to high-quality tenants. The net lease structure protects it from inflation-driven expenses. Meanwhile, nearly all its leases feature some form of annual rental rate escalator.
Roughly 55% of W. P. Carey’s leases have CPI-linked rental rate escalators — 37% are uncapped and 18% are capped. Meanwhile, 40% of its rents rise at a fixed rate, and 4% through some other factor. With higher inflation, the company’s annual base rents are growing faster (3.4% last quarter compared to 1.5%-1.8% in 2021). Inflation-driven rental increases helped push adjusted FFO up 6.3% last year. The REIT also benefited from acquiring another $1.4 billion worth of properties.
Those growth catalysts enabled W. P. Carey to continue increasing its dividend. The REIT has increased that payout, which now yields 5.4%, for nearly 25 straight years.
Benefiting from inflation
Brookfield Infrastructure, Gladstone Land, and W. P. Carey all benefit from inflation. Their business models utilize long-term contract structures with rates linked to inflation, so they’re growing their earnings at a time when many other companies are feeling margin pressure. That’s allowing all three to continue increasing their dividends. Those features make them solid options if you’re seeking ways to offset the impact of inflation on your portfolio and income.
Matthew DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, Gladstone Land, and W. P. Carey. The Motley Fool has positions in and recommends Gladstone Land. The Motley Fool recommends Brookfield Infrastructure Partners and W. P. Carey. The Motley Fool has a disclosure policy.