Infrastructure is the backbone of the global economy. It's essential for supporting the movement of people, goods, energy, and data. Given its importance to the economy, infrastructure businesses tend to be highly regulated by the government, which sets the rates they can charge for usage. That enables infrastructure companies to generate reasonably predictable income, allowing them to pay attractive dividend yields that tend to grow as the economy expands.
Three top-notch infrastructure companies that stand out as compelling buys this month are Atlantica Sustainable Infrastructure (AY), Brookfield Infrastructure (BIP -0.60%) (BIPC), and Crown Castle International (CCI -0.91%). Here's why investors will want to consider adding them to their portfolios.
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The future of infrastructure
Atlantica Sustainable Infrastructure owns a diversified portfolio of infrastructure businesses geared toward sustainability. Overall, 69% of its income comes from renewable energy production, 15% from the transmission and transportation of electricity, 13% from natural gas-related infrastructure like power plants, and 3% from water desalination facilities. The company has long-term contracts with end-users supporting 100% of its revenue, providing a very stable income stream.
Atlantica pays out most of its cash flow in dividends, offering a higher yield that's currently around 4.1%. It uses the funds it retains to helps finance new investments. It closed or announced $322 million of deals last year, including buying out a partner's interest in a large solar project in the U.S. and acquiring a district energy business in Canada. Atlantica aims to invest $200 million to $300 million per year on new infrastructure additions, which should support steady dividend growth.
The global leader
Brookfield Infrastructure is one of the biggest infrastructure operators in the world. It operates transportation, energy, and data infrastructure as well as utilities. Long-term contracts or government-regulated rates back 95% of its revenue, providing it with highly visible cash flows. Brookfield pays out the bulk of that money via a dividend that currently yields 3.7%.
The infrastructure giant uses the cash it retains to help fund acquisitions. It has invested about $1 billion on new additions in recent months, highlighted by a telecom tower portfolio in India and a stake in a large-scale U.S. LNG producer. These investments should give Brookfield the fuel to grow its dividend by another 5% to 9% this year. Meanwhile, future portfolio additions should power similar payout growth over the long-term.
Connected to a decade-long growth opportunity
Crown Castle is a real estate investment trust (REIT) focused on operating communications infrastructure. The company owns a leading telecom tower portfolio in the U.S. and a rapidly expanding network of small cells and fiber optic cable to support the country's 5G rollout. The company leases space on this infrastructure to mobile carriers under long-term contracts that provide it with stable cash flow.
Crown Castle also pays out most of those funds to investors via dividends, with its payout currently yielding 3.4%. The company expects to be able to grow its cash flow at a 7% to 8% annual rate for at least the next decade, supported by the continued growth in communications infrastructure as the country expands its 5G network. It currently has 50,000 small sites online and another 30,000 in the backlog. That enhances its growth outlook, increasing the likelihood of delivering dividend growth around that same 7% to 8% annual pace.
Steady growth and income from these infrastructure operators
Because Atlantica, Brookfield, and Crown Castle all operate vital infrastructure, they generate steady cash flow as end users utilize these assets, which gives them the funds to pay lucrative dividends and expand their infrastructure portfolios. Future growth should provide them with the funds to continue increasing their dividends, potentially giving them the fuel to produce market-beating total returns. That blend of income and upside from such a stable sector makes this trio stand out as excellent buys this February.
