Reap Big Rewards With Global Infrastructure Companies

Global infrastructure companies like Spectra Energy, Williams, Southern Company, and Exelon offer hefty yields and growth potential, too.

Apr 22, 2014 at 4:20PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global infrastructure companies to your portfolio but don't have the time or expertise to hand-pick a few, the iShares Global Infrastructure ETF (NYSEMKT:IGF) could save you a lot of trouble. Instead of trying to figure out which global infrastructure companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on global infrastructure companies, sports a relatively low expense ratio -- an annual fee -- of 0.48%. It recently yielded 3.2%.

This global infrastructure companies ETF has lagged the world market over the past three and five years. As with most investments, we can't expect outstanding performances in every quarter or year, and the future is more important than the past. Investors with conviction need to wait for their holdings to deliver.

Why global infrastructure companies?
Our global economy is slowly turning around. Thus companies in this segment are poised for improving fortunes as construction and infrastructure projects get underway and manufacturing kicks into a higher gear.

More than a handful of global infrastructure companies had strong stock performances over the past year. Spectra Energy (NYSE:SE) surged 33.5%, recently hitting a 52-week high, and yields 3.4%. Bulls like the company for its solid dividend, as well as its growth prospects, due to Spectra's aggressive acquisition and expansion plans and its position as a general partner to master limited partnerships. It operates in most major oil and gas fields where production is increasing, and it's a key pipeline company, too, poised to profit from investments in pipeline development.

Williams (NYSE:WMB) gained 16% and yields 3.9%. It's a major natural-gas pipeline operator, and it has a joint venture in the works with Boardwalk Pipeline Partners to build an LPG terminal. Jefferies downgraded the stock from buy to hold last month, with analyst Christopher Sighinolfi seeing insufficient upside. The company's revenue and free cash flow have been shrinking in recent years, too. Its payout has increased, but some worry that it may not be sustainable.

Other global infrastructure companies didn't do quite so well over the last year but could see their fortunes change in years to come. Southern Company (NYSE:SO) advanced just 2% and yields 4.5%. It has invested more than $5 billion in "clean coal" facilities and is building nuclear plants, too. Bulls have had high hopes for its innovative Kemper coal gasification plant, but the project has been delayed by cost overruns and labor issues. RBC Capital downgraded the company last week from outperform to sector perform. On the plus side, in its latest quarter, Southern topped expectations for both revenue and earnings.

Exelon (NYSE:EXC) shed 2% over the past 12 months. The nation's leader in atomic energy has lost some fans due to worries about the future of nuclear power, but it has kept others with its 3.4% yield. In recent years, its revenue has been trending upward, but earnings have been pressured by the relatively high cost of nuclear power in an environment of very low gas prices. Those gas prices have popped up lately, though (along with electricity prices), which is good for Exelon. Meanwhile, the company has been putting some of its own money in gas, too. Bears worry about threats from wind power, cleaner coal, and cheap natural gas.

The big picture
If you're interested in adding some global infrastructure companies to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make profiting from it that much easier.

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Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Exelon, Southern Company, and Spectra Energy. 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.

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