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Canadian Infrastructure Stocks to Buy Now

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2 weeks ago

November 5, 2024

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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.

While Brookfield Infrastructure is an asset-heavy player in the sector, WSP Global (TSX:WSP) takes a different approach. Specifically, it’s a world-leading professional services firm that operates in 40 countries and works with governments, businesses, architects, and planners and provides integrated solutions across many disciplines.

What sets WSP apart is its ability to deliver long-term earnings growth through its vast portfolio of projects. The company provides advisory, design, and engineering services, offering high-value expertise that supports the development and maintenance of vital infrastructure systems. WSP’s work spans critical sectors such as transportation (roads, rail, airports), energy (oil, gas, renewables), and municipal services (water, waste management, urban development), positioning it as a leader in infrastructure-related consulting and project management.

XIU Total Return Level Chart

WSP and XIU Total Return Level data by YCharts

WSP may not be known for its generous dividend yield, which sits at just 0.6%, but the company has delivered impressive capital appreciation. Over the past decade, WSP’s stock has outperformed the Canadian market, supported by strong earnings growth and its leadership position in the global infrastructure services sector. At around $250 per share, WSP is considered fairly valued by analysts, and it remains an attractive option for investors seeking long-term price appreciation rather than income.

Despite its lower yield, WSP’s consistent earnings growth and market leadership make it an appealing stock for investors who are more focused on capital gains over time. Its diversified exposure to global infrastructure projects also provides an element of stability, with continued demand for infrastructure services expected to grow as economies expand and urbanize.

The post Canadian Infrastructure Stocks to Buy Now appeared first on The Motley Fool Canada.

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Fool contributor Kay Ng has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners and WSP Global. The Motley Fool has a disclosure policy.

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