The stock market goes up and the stock market goes down, but people won’t stop buying electricity, using water and natural gas, surfing the internet, or driving their cars. And the companies that own the infrastructure that supports all of this will continue to collect the small but regular “tolls” charged for using their assets. It doesn’t matter too much what happens on Wall Street; they still get paid. For this reason, investors may want to look at the infrastructure space while Wall Street is largely bearish during this bear market. Here are three options to consider, each offering a generous return.
1. The all in one
Diversification is good for your portfolio and can also be good for a company’s portfolio, especially if the goal is to create a collection of infrastructure assets. Brookfield Infrastructure Partners (GDP -0.31%), for example, spreads its bets around the world, with 44% of its funds from operations (FFO) coming from North America, 19% from South America, 18% from Europe and 19% from Asia. That way, a region’s economic ups and downs won’t affect performance too much. On the business front, it owns utility, transportation, midstream, and data assets (towers, data centers, and fiber optic cables). All of these are generally reliable companies and give the company more options when buying and selling assets. And an individual asset will not have undue influence should it experience difficulties. Essentially, Brookfield Infrastructure is a one-stop shop for infrastructure.
The shares yield around 3.8% today and are backed by a payout that’s increased annually since 2008, adjusted for a special payout in 2020 (the partnership has created a traditional corporate share class for those unable to own partnerships, with shares in the company distribution to the former shareholders). The payout has grown at a compound annual rate of 10% since 2009, which is pretty impressive for any company, let alone one that owns boring infrastructure assets. Funds from operations over this period increased at a whopping 15% per year. This infrastructure player has clearly proven that it can simultaneously offer a broad footprint and strong growth, making it a solid option for anyone exploring the space. Best of all, despite the company’s resilience, the stock is down about 17% from its recent highs thanks to the bear market.
2. Get clean
Another option in the Brookfield family to consider is Brookfield Renewable Corporation (BEPC 0.90%). As the name suggests, this company focuses on clean energy investments, from solar and wind power to energy storage. It currently has 21 gigawatts of capacity in its portfolio, with another 69 gigawatts in the development pipeline. In other words, it aims to triple in size and has the projects lined up to make it happen. Most of today’s generation, about 50% of the portfolio, comes from hydropower, which provides a solid foundation for the company’s plans to grow elsewhere in the clean energy niche.
The share is currently yielding around 3.6%. Brookfield Renewable is targeting annual dividend increases of 5% to 9%. As with Brookfield Infrastructure, there are actually two similar share structures here, the other being a partnership — Brookfield Renewable Partners (BE -0.24%). The partnership has increased its dividend for a decade at a compound annual clip of 6%, adjusted for the Brookfield Renewable Corporation spinoff. Given the backlog of new projects in the pipeline, management expects funds from operations to grow an annualized 10% through 2026. If you want to focus on clean energy, this is a strong option, and it’s down nearly 16% from its highs about a year ago.
3. Fully regulated
Dominion Energy (D 1.83%) is the last name on my list today. Having sold portions of its business over the past decade, it is largely a regulated utility, providing electricity and natural gas services to 7 million customers in 13 states. Being regulated gives it monopolies in the regions where it operates, but it has to have its tariffs and investment plans approved by the government. Growth tends to be slow and steady over time and generally happens regardless of what’s going on in the world. That’s because regulators are more focused on ensuring reliable access to power and natural gas than on the ups and downs of Wall Street.
Dominion cut its dividend in 2020 after selling a pipeline business Berkshire Hathaway. That simplified Dominion’s business, projecting annual earnings growth of 6.5% over the next five years, with dividends expected to rise about 6%. Shares are down about 13% from the highs they hit in early 2022. This relatively strong performance compared to the other two names here and that of the broader market is not shocking given the nature of the utilities business. However, the company’s strong growth prospects, backed by $37 billion in investment plans (including a healthy dose of clean energy), are also an important part of the story. If you’re looking for a safe way to own infrastructure, Dominion and its regulated business could be a good choice. The yield is currently around 3.3%.
Three ways to play Infrastructure
If you want a simple, one-time infrastructure investment that you can make while the market is down, Brookfield Infrastructure Partners is a solid choice. If you’d rather focus on the clean energy side of things, Brookfield Renewable Corporation could work for you. Dominion Energy, on the other hand, is a regulated name that can offer income and dividend growth and operates a bit outside of the Wall Street sphere. All three are down thanks to the bear market, but it might be worth stocking up if you like reliable dividends.
Reuben Gregg Brewer has positions in Dominion Energy, Inc. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Brookfield Renewable Corporation Inc. The Motley Fool recommends Brookfield Infra Partners LP Units, Brookfield Infrastructure Partners, and Dominion Energy, Inc and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares) and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.