Infrastructure stocks don't generate a lot of headlines, but they're some of the most stable on the market. Companies that deliver water, natural gas, electricity, and other essential services can generate steady earnings for investors for decades, rewarding long-term shareholders with steadily growing dividends.
As investors look for stable investments in volatile times, the three infrastructure stocks that lookt to have both value for investors and long-term growth opportunities are Waste Management (NYSE: WM), Essential Utilities (NYSE: WTRG), and Brookfield Infrastructure Partners (NYSE: BIP).
Garbage and recycling aren't high-growth or very sexy businesses, but they are very profitable. And Waste Management is the industry's leader.
You can see below that Waste Management has steadily grown over the past decade and net income has nearly doubled, although results have been choppy. But what I think investors should focus on is the dividend. You can see that the dividend is steadily growing, and with a 1.9% yield and a 56% dividend payout, ratio there's room for growth long-term.
Like most infrastructure companies, it's the stickiness of Waste Management's business that's a huge value for investors. Municipalities and customers who sign up for the company's services often pay their bills automatically with little thought of comparing what alternatives exist. That's the kind of infrastructure business I want to be invested in and is why Waste Management is a great stock today.
Water and wastewater services are some of the most essential services for municipalities across the country, and Essential Utilities is one of the public companies that make them happen. It operates similarly to an electric utility, generating regulated returns on its investment in water services for communities. And it's a steady business, with management expecting rate base growth of 6% to 7% from 2019 to 2022.
The other side of the business is natural gas. Essential Utilities has 740,000 gas customers in three states. Management expects the rate base in that business to grow 8% to 10% annually from 2019 to 2022 as low natural gas prices drive a slow increase in consumption.
Essential Utilities is another steady dividend stock with a 2.6% yield and a long history of dividend growth. With water services at its core, this is a dividend investors should count on for decades to come.
Brookfield Infrastructure Partners
The most diverse infrastructure stock on this list is Brookfield Infrastructure Partners, which invests in everything from electricity transmission to toll roads to data centers. The company is able to buy and sell assets in each sector to maximize value and cash flow for investors.
You can see below that management has been able to steadily grow revenue, cash from operations, and ultimately the dividend, which is what investors should be judging the company by. Today, the stock leads the three companies mentioned here with a 4% dividend yield.
At the end of the day, Brookfield Asset Management is the company investors are trusting with this investment because it controls Brookfield Infrastructure Partners. And the company has a long history of generating long-term value with infrastructure assets. That's why this is one of the best infrastructure stocks on the market.
Three ways to generate yield in infrastructure
The quality investors should love about infrastructure investments is their steady nature. Whether you like garbage and recycling, water and natural gas, or the diverse assets of Brookfield Infrastructure Partners, these are great investments with growing yields for investors. That's why Waste Management, Essential Utilities, and Brookfield Infrastructure Partners are my top infrastructure stocks today.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool recommends Brookfield Infrastructure Partners and Waste Management. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.