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Investing in Infrastructure Stocks

Updated: Dec. 6, 2021, 3:40 p.m.

Infrastructure enables the transportation and storage of energy, water, freight, passengers, and data. It's the physical backbone of the global economy, and, because of that, well-maintained infrastructure is vital to the health and continued growth of the economy.

Infrastructure is costly to build and maintain, as President Joe Biden's proposed $2 trillion infrastructure plan makes clear. Biden's plan includes highway repairs, bridge reconstruction, and port, airport, and transit system upgrades. However, targeted spending plans like the one Biden has proposed are modest when the global investment required through 2035 to rebuild and expand the world's infrastructure has been estimated at more than $69 trillion.

Governments alone can't afford that expense, which is why they're increasingly collaborating with companies in the private sector. An infrastructure company may own, operate, build, maintain, or expand infrastructure systems. The different types of infrastructure include:

  • Transportation infrastructure: The physical assets, such as airports, railroads, toll roads, and ports, that move people and freight from one place to another.
  • Commodity infrastructure: The physical assets that produce, transport, process, and store commodities such as water, oil, natural gas, refined petroleum products, and electricity. Commodity infrastructure systems include interstate pipelines, the electrical grid, and energy distribution systems.
  • Data infrastructure: Physical networks and components, such as communications towers and data centers, that enable the movement and storage of information.

Top infrastructure stocks

Below are three top infrastructure companies that have long histories of creating shareholder value and are well-positioned to benefit from the sector's growth.

1. Brookfield Infrastructure

With government entities increasingly transferring ownership of infrastructure assets to the private sector in order to finance the maintenance and expansion of other infrastructure, Brookfield Infrastructure (NYSE:BIP)(NYSE:BIPC) is well-positioned to profit. A leader in owning and operating transportation infrastructure, the company holds a diversified, global portfolio of transportation infrastructure companies.

Brookfield Infrastructure's assets include:

  • Rail systems of thousands of miles in Western Australia, North and South America, and Europe.
  • Thousands of miles of toll roads in Brazil, Chile, Peru, and India.
  • Terminals at 13 marine ports in North America, the U.K, and Australia.
  • A liquefied natural gas (LNG) export facility in the U.S. and an Australian export terminal.

As a global operator, Brookfield also manages utilities, midstream energy processing and storage systems, and data infrastructure.

The company has a long history of growing its dividend and outperforming the S&P 500 (SNPINDEX: ^GSPC). Brookfield over the long term is expecting to annually grow its cash flow per share by 5% to 9%, and it is likely to continue paying a dividend yield above the broad market average.

2. Enbridge

Enbridge (NYSE:ENB) is one of the leading energy infrastructure companies in North America. It operates the longest and most complex transportation system for crude oil and liquids in the world. Enbridge also operates large-scale pipeline transmission and midstream systems for natural gas, along with one of North America's largest (by volume) natural gas utilities. This infrastructure company has a sizable renewable energy business as well.

Enbridge has increased its dividend for more than 25 consecutive years, during which time shareholders have also benefited from attractive price appreciation. Enbridge is still growing and estimates it can increase its annual cash flow per share by 5% to 7% through at least 2023. The company is well-positioned to continue increasing its high-yielding dividend, and, in the wake of the 2020 turbulence in the energy market, Enbridge stock may be undervalued.

3. Crown Castle International

Crown Castle (NYSE:CCI) is one of the largest infrastructure-focused real estate investment trusts (REITs). The company enables mobile data and voice transmissions by operating more than 40,000 large communications towers in the U.S. and owns a fiber-optic cable telecommunications network spanning 80,000 miles. The company has completed or is currently building 80,000 small cell wireless facilities -- crucial infrastructure that is enabling 5G networks to proliferate across the country.

This infrastructure-focused REIT has steadily grown both its cash flow and dividend. The advent of 5G technology is, according to Crown Castle, a decade-long investment opportunity for the company. Consequently, its dividend, which is already high-yielding, could increase by another 7% to 8%.

Top infrastructure ETFs

For investors who prefer not to choose individual stocks, buying shares in exchange-traded funds (ETFs) enables you to make diversified, directional bets on stock market sectors and investing themes. Investors have plenty of infrastructure-focused ETFs from which to choose.

The three infrastructure ETFs listed below concentrate on different aspects of the infrastructure industry. Combined with their large asset bases -- these funds are the top three infrastructure ETFs by assets under management -- any of these ETFs are great options for gaining portfolio exposure to the infrastructure investing megatrend:

1. iShares Global Infrastructure ETF

The iShares Global Infrastructure ETF (NASDAQ:IGF) holds the stocks of more than 75 infrastructure companies primarily focused on serving developed countries. The ETF's top three holdings include NextEra Energy (NYSE:NEE), the large U.S. utility and leading renewable energy producer; the Australian toll road operator Transurban; and Enbridge.

2. Global X US Infrastructure Development ETF

The Global X US Infrastructure Development ETF (NYSEMKT:PAVE) holds the stocks of more than 100 infrastructure companies, all of which are poised to benefit from an increase in U.S. infrastructure investment spending. The fund holds the stocks of raw materials producers, heavy equipment makers, and engineering and construction companies. Its top three holdings are the heavy equipment maker Deere (NYSE:DE); the maker of motion and control systems Parker Hannifin (NYSE:PH); and the power management company Eaton (NYSE:ETN).

3. FlexShares STOXX Global Broad Infrastructure Index Fund

The FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEMKT:NFRA) is an ETF that holds nearly 250 infrastructure stocks. The fund provides exposure to the energy, utilities, communications, and transportation sectors. Its top three holdings are the railway operator Canadian National Railway (NYSE:CNI) and the telecommunications giants Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T).

Sector-specific infrastructure stocks

Here are some specific types of infrastructure stocks and the companies providing the best exposure to these parts of the infrastructure industry.

Electrical infrastructure stocks

Dozens of electric utility companies focus on generating electricity and distributing it to customers. They also collectively maintain the infrastructure comprising the nation's electrical grid to ensure its reliability. One of the leading U.S. electric utilities is NextEra Energy.

Natural gas infrastructure stocks

Many infrastructure companies operate natural gas infrastructure, which includes pipelines, processing plants, storage facilities, and LNG export terminals. Among the leaders are Enbridge and Kinder Morgan (NYSE:KMI).

Road infrastructure stocks

Road infrastructure companies operate toll roads under concession agreements with governments. They collect tolls to maintain the roadways and expand the roads as traffic volumes increase. Among the leaders in this sector are Brookfield Infrastructure and Transurban.

Technology infrastructure stocks

Technology infrastructure includes communications towers, fiber-optic cables, and data centers. Some of the leading technology infrastructure companies are Crown Castle and American Tower (NYSE:AMT), both of which are infrastructure-focused REITs.

Water infrastructure stocks

Pipelines, distribution systems, desalination plants, and wastewater and sewage treatment facilities are all considered water infrastructure. One of the industry's leaders is the water utility American Water Works (NYSE:AWK).

Green infrastructure stocks

A growing number of infrastructure companies are developing, owning, and operating emissions-free energy sources such as wind, solar energy, hydrogen, hydroelectricity, and biofuels. Among the sector's leaders are NextEra Energy and Brookfield Renewable (NYSE:BEP)(NYSE:BEPC).

Is investing in infrastructure right for you?

Trillions of dollars are required globally to both rebuild aging infrastructure and construct new assets to meet the needs of steadily rising populations. With such immense need and so many ways to invest, adding infrastructure stocks or ETFs to your investment portfolio is a straightforward way to profit from this megatrend.

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