Should I buy this dividend stock with its juicy 6.5% dividend yield?

This Fool wants to boost his passive income stream, so is on the lookout for a dividend stock that can offer regular and stable dividends.

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Dividend stocks can boost my passive income stream through dividend payments. I want to find a dividend stock that can provide stable and consistent returns for the long term. Is GCP Infrastructure Investments (LSE:GCP) a stock that can provide these returns? Let’s take a closer look.

Investing in UK infrastructure

As a quick reminder, GCP is an investment trust that invests in UK infrastructure projects that are backed by public funds, namely the government. The business is different in the sense that it invests in the debt that these programmes accrue, which makes it a less risky proposition.

So what’s happening with GCP shares currently? Well as I write, they’re trading for 113p. At this time last year, the stock was trading for 103p, which is a 9% return over a 12-month period.

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A dividend stock with risks

The biggest risk with any stock designed to pay sustainable and regular dividends is the threat of them being cancelled. Dividends are never guaranteed and can be cancelled at the discretion of the business at any time. This can be for a number of reasons, such as poor performance or an extreme event such as the pandemic of 2020 or the 2008 financial crash.

Another risk of note for GCP is finding and investing in new assets to be able to continue providing stable returns. Finding quality assets and identifying the best ones that will boost its portfolio is a long and arduous task. Furthermore, there is a risk that any of its investments may not pay off and, in fact, cost the business, having a detrimental impact on returns.

The bull case and my verdict

As with any dividend stock I review before buying shares, I look at GCP’s dividend yield. It currently stands at 6.5%. This is higher than average yield of just under 2% for the FTSE 250, which is the index it currently resides in. In fact, it is also higher than the FTSE 100 average of 3%-4%.

So what about the value of GCP shares? Well, at current levels, they’re on a price-to-earnings ratio of just six. This makes them look like they are excellent value for money.

The UK infrastructure market is a burgeoning one and if GCP selects the right projects, this could mean highly lucrative returns for potential investors too. An increase in projects such as social housing is something GCP has already invested in. This is linked to the demand for homes outstripping supply in the UK. Furthermore, the shift towards renewable energy has seen the UK government invest hundreds of millions into these projects and GCP has exposure here too. I like the fact it is capitalising on growth trends at a time when infrastructure spending is up. This should boost returns.

Based on GCP’s valuation currently, the yield on offer, as well as it making the most of the current infrastructure spending boom, I would buy the shares for my holdings. I would expect consistent returns for the long term, which is my aim when buying any dividend stock.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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