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3 Top Infrastructure Stocks to Buy in September

By Matthew DiLallo – Sep 1, 2020 at 7:15AM

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These infrastructure stocks offer investors steady growth and income.

Infrastructure is the backbone of the global economy. It helps power our society and supports the movement of goods and people. Because of its importance, infrastructure assets tend to generate relatively stable income streams even during a recession. That enables infrastructure companies to produce steady cash flow, which often supports attractive dividends.

Three top players in the sector are Atlantica Sustainable Infrastructure (AY 0.88%)Brookfield Infrastructure (BIP 0.84%) (BIPC 1.49%), and Enbridge (ENB -0.32%). Here's a look at what makes them solid buys this September.

Oil pumps, a natural gas well, and solar panels with the sun setting in the background.

Image source: Getty Images.

The future of infrastructure

Atlantica Yield operates a globally diversified portfolio of infrastructure assets focused on renewable energy, power generation, electric transmission, and water. The company has long-term, fixed-rate contracts in place for 100% of its capacity, enabling it to generate steady income. It pays out the bulk of its cash flow (87% over the past year) via a 5.6% yielding dividend. It uses the remaining cash and its healthy balance sheet to acquire more cash-flowing infrastructure assets, giving it the power to grow its dividend.

Atlantica made two notable growth-related investments in recent months. In April, it invested in a renewable energy joint venture in Chile, and in July, it exercised its option to buy out a partner's interest in a U.S. solar facility. These deals will help bolster its cash flow in the coming quarters, which could support future additional dividend growth. Meanwhile, it has lots of remaining liquidity to continue investing in infrastructure assets. Its yield, upside, and focus on sustainable measures like renewable energy enable it to support the economy of today and tomorrow. These characteristics make it an ideal long-term holding

Dialing in on data

Brookfield Infrastructure also operates a globally diversified portfolio of infrastructure assets. However, it has a slightly different focus, as it owns utilities, transport, energy, and data infrastructure assets. Most of these businesses generate steady income backed either by long-term, fixed-rate contracts or government-regulated rates. The company also pays out the bulk of its cash flow (about 65% in 2020) to support a 4.4%-yielding dividend.

Brookfield uses the cash it retains to expand, which it complements with a top-notch balance sheet backed by an investment-grade credit rating. That gives it the financial flexibility to invest in expansion projects and make acquisitions. In recent years, a key growth focus has been on building out its data infrastructure platform, which includes data centers, communications towers, and fiber optic cables. These assets are crucial to supporting the telecom and technology sectors, including emerging trends like 5G, the Internet of Things, and cloud-based software. The company expects its expansion efforts to power continued cash flow growth in the future, which should support dividend growth of 5% to 9% per year. That makes it an ideal infrastructure stock to buy for those seeking a steadily growing income stream.

Oil still has a role to play in fueling the global economy

Enbridge runs an infrastructure portfolio that's a bit more focused as it concentrates on the energy sector. It's a leading pipeline company in North America, transporting 25% of the continent's oil output and 20% of the gas consumed. In addition, it's the third-largest gas utility in North America and owns several renewable energy assets, including offshore wind farms in Europe. 

Despite all the turbulence in the energy sector, Enbridge has a highly resilient business model because long-term contracts or government-regulated rates lock in its cash flow. Those features make it nearly immune to fluctuations in volume and pricing, enabling it to generate steady cash flow even in challenging market conditions. It typically pays out 65% of those funds to support its dividend, which currently yields 7.5%.

Enbridge combines the funds it retains with its strong balance sheet to expand its energy infrastructure portfolio. It has billions of dollars of expansion projects under construction, including new oil and gas pipelines, utility projects, and offshore wind farms in Europe. It estimates that these new additions will grow its cash flow by 5% to 7% per year, which should support continued dividend growth. That should enable the company to maintain its status as an elite dividend stock.

Turning infrastructure into reliable income

Atlantica, Brookfield, and Enbridge focus on owning infrastructure assets that generate steady cash flow backed by long-term contracts or government-regulated rates. This focus enables these companies to pay attractive dividends while continuing to invest in expanding their operations, which should allow them to keep increasing those payouts. That combination of growth and income makes them great infrastructure stocks to buy for the long haul this September.

Matthew DiLallo owns shares of Atlantica Sustainable Infrastructure plc, Brookfield Infrastructure, Brookfield Infrastructure Partners, and Enbridge. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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