Infrastructure is a fairly broad category, but it basically includes the major assets that make everyday life possible. Such assets, which can be anything from toll roads to pipelines, generally cost huge amounts to build (and buy), and generate regular and dependable cash flows for years or even decades. For income investors, it is a very attractive area of the market. These three infrastructure giants are worth a close look today: Brookfield Infrastructure Partners (BIP +0.92%), Enbridge (ENB 1.06%), and Kinder Morgan (KMI 1.03%).
1. The punter
In football, you "punt" when you want to play it safe. That's an appropriate way to view Brookfield Infrastructure Partners. This roughly $17 billion market cap company owns a collection of assets that includes natural gas pipelines, energy storage, electricity transmission assets, railroads, toll roads, ship terminals, and data centers, among other things. Not only does it have an incredibly diverse portfolio of assets, but it also spreads its bets globally, with 30% of its business located in North America, 25% in South America, 20% in Europe, and 25% in Asia and Australia. It's basically a one-stop shop for investors looking to get into the infrastructure space.
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The master limited partnership has a core focus on growing its distribution as well, which it has done annually for 14 consecutive years. The long-term goal for Brookfield Infrastructure Partners is distribution growth of 5% to 9%. However, the annualized rate of increase between 2009 and 2021 was roughly 10%, which bests the company's own target and handily trounces the 3% historical average for inflation. And even though inflation has ticked higher more recently, distribution growth of 10% is still outpacing general economic cost increases.
The problem here is that the distribution yield, at around 3.5%, is low by historical standards, so Brookfield Infrastructure Partners looks pricey today. However, for those looking for broad exposure to infrastructure, it really is a good option.
2. High-yield pipes and more
The next name up is Enbridge. This company is generally categorized as a midstream pipeline play. In fact, 54% of its EBITDA comes from oil pipelines, and another 20% from natural gas pipelines. The company has more miles of oil pipe than any other competitor in North America and is number two on this metric in natural gas. However, Enbridge also owns a natural gas utility business (14% of EBITDA) and a renewable power operation (3%). The renewable power segment, notably, has a number of large offshore wind projects in the works that should increase its size over time. All in all, the company has a foundation in cash-cow oil operations, and is working to transition with the world around it toward cleaner energy sources, from natural gas to electricity.
The over-$80 billion market cap company has increased its dividend annually for 26 consecutive years, putting it into Dividend Aristocrat territory. And the average dividend increase over the past decade has been a generous 10% or so. The company's goal for the near term is to keep investing in its business with ground-up construction so that it can support 5% to 7% growth in its distributable cash flow. The dividend is likely to follow along that same path. The stock currently yields a historically high 6.2%, largely thanks to the company's oil pipeline exposure, which makes it something of a carbon pariah. But that could be an opening for investors with a more contrarian bent willing to bet on Enbridge's long-term transition plans.
BIP Dividend Yield data by YCharts
3. Regaining investor trust
Kinder Morgan, another midstream name, rounds out this list. However, this company is likely to be something of an acquired taste, because it cut its dividend in 2016. The big problem is that it had been telling investors to expect a dividend increase just a couple of months before it announced the cut. That should probably keep ultra-conservative types on the sidelines. However, since the cut, it has been working hard to regain investor trust, including annual dividend increases since 2018. What's really interesting is that Kinder Morgan had set a pretty aggressive dividend plan that included a big hike in 2020. But when the pandemic hit it pulled the number back so that it wouldn't make another dividend promise it couldn't keep. With another hike already in the books in 2021, it looks like the more conservative path is still paying off for dividend investors.
What's also interesting here is that, like Enbridge, Kinder Morgan's business is centered around carbon fuels. It touts itself as having the largest natural gas transmission network, being the largest independent player in refined product transport, being the biggest independent name in the terminal business, and having the biggest footprint in carbon dioxide transportation. It's also making use of its scale and size (it has a $42 billion market cap) in an out-of-favor industry to be a consolidator, recently inking a couple of acquisitions. The yield today is 5.8%, which is historically high and also tied to the generally negative view of carbon fuels. All in all, however, it appears the company's new direction is on sounder footing than it was back in 2016, which might interest more adventurous income investors.
Time for an infrastructure deep dive
There's no such thing as a perfect stock, so investors need to do some more legwork here before picking an infrastructure investment. Brookfield Infrastructure Partners is probably the best option for those seeking broad exposure to hard assets, though you'll pay a premium price for that convenience. Enbridge is a slow and steady performer with an incredible dividend record and historically high yield. And Kinder Morgan is something of a turnaround play, given its less-than-sterling dividend history -- but it really does seem like management has gotten the company moving in a better, more shareholder-friendly direction. It's likely that one of these names will fit your infrastructure needs.
