Betting on Infrastructure
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There’s nothing sexy or glamorous about investing in infrastructure. There aren’t new product roll-outs on a weekly basis that change the world as we know it. Nah, these are the companies that quietly go about the business of providing needed highway construction, energy generation, transportation and the heavy machinery needed to accomplish all of this. Nothing too exciting there for investors, right?
On the contrary, there's actually quite a few reasons to look closer at the infrastructure space.
A common theme amongst these companies is a solid dividend. As a rule there aren’t wild price fluctuations either with earnings ratios approaching the stratosphere – a la a Netflix or LinkedIn. So in lieu of crazy appreciation opportunities shareholders enjoy a generally stable, but consistently good yield. This is especially attractive for income hungry investors with few traditional options - such as bonds, CD’s and the like.
With that said, expand the traditional sector space, and there are opportunities for investors willing to take on more risk for greater appreciation potential. Both Caterpillar (NYSE: CAT) and Deere (NYSE: DE) perform well when infrastructure as a whole performs well. Neither is overly expensive right now and the yields are decent. The more aggressive of the two – Deere based on the company’s up and down financial performance of late – provides a 2.25% dividend, and Caterpillar’s is a decent 1.62%.
Other companies that are likely to perform well are industry-leading transportation providers Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC). An increase in infrastructure activity - which in turn gives rise to more shipping of goods and materials – is a natural extension of a burgeoning economy. Further, these companies tend to closely follow the broader market. For investors in search of income and wanting to take advantage of infrastructure growth, wide fluctuations in share price are best avoided.
As the myriad of indicators used to gauge economic growth continue to improve – spending, construction, consumer confidence and manufacturing to name a few – infrastructure-related companies should prosper. Sure there’ll be a slight dip here or missing growth expectations there – but the key indicators are all trending upward.
And an improving economy means increased construction, energy consumption and the need to build and maintain the roads and bridges vital to our nation’s continued growth.
One option that flies under many an infrastructure investor’s radar is Brookfield Infrastructure Partners (NYSE: BIP). What makes Brookfield Infrastructure unique from other companies listed in this article is they provide sector diversification all in one fell swoop. Not only does the $3.4 billion company have their fingers in energy, transportation and timber, they offer shareholders an extremely attractive 4.74% dividend yield.
Nah, you’re probably not going to sit around the water cooler bragging to your friends about the consistent growth and yield you’ve enjoyed investing in the backbone of our country. But then, there’s a good chance you won’t have the vacant stare and dark circles under the eyes from a lack of sleep either.
Motley Fool newsletter services recommend Brookfield Infrastructure Partners. The Motley Fool owns shares of Brookfield Infrastructure Partners. timbrugger has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.