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Canadian Infrastructure Stocks to Buy Now

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2 months ago

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Canadian Infrastructure Stocks to Buy Now

Written by Kay Ng at The Motley Fool Canada

Infrastructure investments have proven to be a reliable source of income and capital appreciation for the long term. According to Starlight Capital, infrastructure assets tend to deliver consistent returns and income, outperforming both public stocks and fixed-income investments across various market cycles. Starlight defines infrastructure as firms or assets that provide essential services to large segments of the population in a supply-constrained manner.

These companies typically enter long-term contracts that generate predictable revenues and cash flow, making them a great option for a long-term investment. If you’re looking to build a robust portfolio, these two Canadian infrastructure stocks are worth considering now.

One of the top Canadian infrastructure stocks to consider is Brookfield Infrastructure Partners (TSX:BIP.UN). This company is a leading player in the global infrastructure sector, with a diversified portfolio that spans essential services such as energy, transportation, telecommunications, and utilities.

Brookfield owns and operates a vast array of critical assets, including over 4,200 km of natural gas pipelines, 2,900 km of electricity transmission lines, and 37,300 km of rail. Additionally, it invests in toll roads, telecom towers, fibre optic cable networks, and data centres, which are integral to modern economies.

Approximately 90% of Brookfield’s funds from operations (FFO) are either contracted or regulated, offering investors a level of stability in a volatile market. Additionally, about 85% of its FFO is inflation-protected or indexed, ensuring that the company’s cash flow remains resilient in the face of rising costs. Brookfield also maintains a solid BBB+ investment-grade balance sheet, enabling it to service its debt effectively. Since its spin-off from its parent company in 2008, Brookfield Infrastructure has consistently paid an increasing cash distribution, making it a reliable income-growth investment.

At $47.13 per unit at writing, Brookfield offers a decent cash distribution yield of around 4.7%. Analysts find the current levels fairly valued, so it might make sense to take a starter position. Over the past decade, the stock has outperformed the broader Canadian market, demonstrating its long-term growth potential. However, it has underperformed over the past three and five years, suggesting that investors may want to wait for a market correction to load up shares.

Brookfield’s long-term cash distribution growth rates are impressive, with a five-year growth rate of 6.3% and 10-year growth rate of 8.3%. This makes it an attractive pick for investors seeking both income and capital appreciation.

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