It wasn't long ago that infrastructure was a hot topic as the U.S. economy looked for ways to uplift itself out of the pandemic-induced recession. However, spending has taken a back seat to inflation and recession fears as investors and businesses batten down the hatches and prepare for the worst.
However, long-term investors know that it is far better to pick a winning company and hold it throughout cycles than try to bob and weave in and out of cyclical names. Brookfield Infrastructure (BIPC 5.86%) (BIP 5.92%), Kinder Morgan (KMI 1.02%), and Hubbell (HUBB 1.16%) stand out as three great buys now. Here's why.
Brookfield can bolster your passive income stream
Scott Levine (Brookfield Infrastructure): While pinching the pursestrings can be one way to handle the rising prices we're all facing, it's hardly the only solution. Looking to fortify your financial position with high-yield dividend stocks is another savvy move to make these days. Not just any high-yield dividend stock will do, though; we want to buttress our portfolios with less risky dividend payers -- stocks like Brookfield Infrastructure, which currently offers an enticing forward dividend yield of 3.8%.
With global operations in North and South America, Europe, and the Asia Pacific region, Brookfield Infrastructure has a worldwide presence in a variety of infrastructure projects including (but not limited to) natural gas pipelines and storage, data centers, toll roads, and electricity transmission. This diversity in its business dealings reduces the risk of challenges in an individual market. Investors, however, may be more focused currently on how complicating factors such as rising interest rates may affect the company. To this end, investors should be relieved to learn that 90% of the company's debt is a fixed rate. Additionally, reassurance of the company's standing on solid ground comes from the fact that it retains an investment-grade corporate rating (S&P BBB+).
While the future is not a certainty, Brookfield Infrastructure's history should foster confidence that bright days lie ahead. Should the company return $2.16 to unitholders in 2022 as it plans, it will represent an approximate 10% compound annual growth rate for its distribution since 2009. Looking ahead, management has targeted continued annual distribution growth of 5% to 9% -- a rate that seems attainable considering management's expectation that it will continue to earn a 12% to 15% rate of return on invested capital.
Kinder Morgan stitches together the fabric of the U.S. oil and gas industry
Daniel Foelber (Kinder Morgan): Midstream oil and gas companies are in the business of transporting hydrocarbons for hundreds if not thousands of miles along a network of compressor stations that connect production points to processing stations and end users. Known as the tollways of the energy industry, these companies tend to book long-term contracts for their assets, which leaves them less vulnerable to market downturns and less upside if oil and gas prices pop.
Kinder Morgan is one of the largest midstream companies in North America. Its latest investments include some of the industry's largest pipelines that connect the Permian Basin to the Texas Gulf Coast, where natural gas can be processed, cooled, and condensed for transport to buyers overseas in the form of liquefied natural gas.
Kinder Morgan stock has recently fallen nearly 20% from its high as oil and gas prices tumble and investors question how demand will react in a recession. However, the long-term investment thesis for Kinder Morgan looks bright. The company has plenty of room to expand its infrastructure and book more contracts to fuel its cash flow and dividend growth. Kinder Morgan's balance sheet is in excellent shape, as the company has used extra cash to pay down debt. With a dividend yield of 6.7%, Kinder Morgan is a low-risk income stock that can round out a diversified portfolio.
A mid-cap stock with lots of long-term potential
Lee Samaha (Hubbell): There aren't many industrial companies whose earnings are trending ahead of initial expectations going into 2022, but Hubbell is one of them. Management began 2022 forecasting organic sales growth of 8%-10% and adjusted diluted earnings per share (EPS) of $8.75–$9.25 only to raise it to 11%-13% and $9-$9.40 on the first-quarter earnings call in late April.
Furthermore, during Hubbell's investor day presentation in early June, management said it was "tracking to upper half of adjusted EPS outlook." Other takeaways from the presentation include organic revenue growth increasing from low-single-digit growth to middle-single-digit, with double-digit adjusted EPS growth until 2025.
It all speaks to the resiliency of Hubbell's end markets. The company makes electrical equipment, meters, connection products, and lighting fixtures. About 56% of its sales go to the utility market (mainly transmission and distribution), with 44% to electrical solutions (electrical products, connection, and bonding). There's a need to replace the infrastructure of an aging U.S. electrical grid. The trend toward electrification in the economy means Hubbell's solutions have strong long-term demand trends behind them.
No company will be truly safe from a recession, but Hubbell stands to do relatively well. Throw in a 2.3% dividend yield, and the stock is attractive for investors.