Investors Will Reap The Benefit Of Infrastructure Spending
It is without a doubt the U.S. desperately needs to spend on infrastructure. As one of the worlds largest economies and biggest spenders on infrastructure, the U.S. is also a leader in need. The roads, waterways, railroads, bridges, dams, and water delivery systems are decades old at least and, in many cases, closing in on 100. With this in mind, it is no wonder infrastructure is emerging as a political issue, we have a need but our leaders just can’t agree on how to go about meeting it.
The White House is making another attempt at an infrastructure bill but there is little hope it will gain momentum. The Trump Administration has issued a set of guidelines for a $1 trillion spending package that includes repairs to collapsing bridges, congested roadways, and overcrowded airports among others.
The Trump plan calls for spending over a course of ten years but critics point out there is no mention of where the money will come from. I guess Trump wants Congress to do their job and negotiate a deal, they’ll pick apart any plan he sends over anyway. Better for them to come up with their own.
House Democrats are expected to release the details of their plan in May. The risk for them is in the extreme. How extreme will they go, the Green New Deal and financial reforms being floated around are so far out in left field they have no hopes of ever passing. Any infrastructure spending bill will have to satisfy both sides of Congress if it is going to have any hopes of passing.
Former Vice President Joe Biden is exploring a run for the Presidency in 2020. As part of that exploration, he is in talks with advisers about a potential infrastructure reform plan. Such a plan would put him in direct competition with Trump on a key plank from his platform. If he can garner bipartisan support it could be a game-changing issue for many voters.
Infrastructure Spending, It’s Coming To A Town Near You
Bottom line, infrastructure is going to be an issue in America for decades to come. It is a hotbed topic in Washington and that means money will get thrown at it, once we pass the hurdle of Congressional approval. Until then investors can benefit from infrastructure and real assets stocks in other ways.
Infrastructure equities are unique in that the businesses that underlie them are buffered from general economic and market conditions. One reason is that there are high barriers to entry, most companies in the infrastructure business are well established and do not fear competition. Another reason is infrastructure companies typically operate under long-term contracts backed by government legislation. A benefit of these contracts is their values are often pegged to inflation, a benefit passed through to shareholders in the form of share prices.
What investors get when they buy into infrastructure is an asset with steady, long-term, guaranteed revenue insulated from inflation. The asset usually yields a dividend well above the market average using the S&P 500 ETF SPY as a benchmark. The SPY is yielding less than 2.0% at today’s share prices and many infrastructure stocks and funds are delivering yields above 5.0%.
One of the most well-known infrastructure plays is Macquarie Infrastructure Corporation (MIC). MIC is an infrastructure services company providing aid and support through three arms. These include a network of petro/chem storage facilities, airport and aviation services, and services in Hawaii. What I like about this company is that it is infrastructure for infrastructure businesses aiding the energy and airport/transportation sectors. I also like it because it delivers a yield near 10% at today’s prices. The payout ratio is astronomically high but mitigated by the company’s reinvestment of earnings and long-term growth strategy.
Brookfield Infrastructure Partners (BIP) is another quality choice for investors seeking exposure to the sector. Brookfield Infrastructure Partners is a subsidiary of Brookfield, an investment manager specializing in infrastructure for over 100 years. BIP owns and operates infrastructure businesses in utilities, energy, transportation, and data. The portfolio is diversified around the world making it a globally focused fund. It is yielding close to 5.0% at current share prices, a bit low compared to peers, but it comes with better coverage and an expectation for growth. The company has increased the distribution ten years running with a +10% average growth rate.
Brookfield manages a number of other vehicles for infrastructure investing. Two that I like are the Global Listed Infrastructure Fund (INF) and the Real Assets Income Fund (RA). The Global Listed Infrastructure Fund invests solely in the equities of globally listed infrastructure companies while the Real Assets Income Fund is a multi-asset fund that employs a dynamic allocation strategy to drive returns. The INF is yielding over 8.0% compared to the 5.0% offered by Brookfield Infrastructure Partners while the Real Assets Income Fund is yielding closer to 11.25%.
Hanson Armstrong Sustainable Infrastructure Capital (HASI) is an interesting stock that just turned up on my radar. Hanson is providing capital and services to the sustainable infrastructure industry. The company’s projects include energy efficiency for buildings and facilities, passive or solar heating/AC, water and stormwater infrastructure, and wind-generated power. The stock yields about 5.0% at today’s prices.