3 Infrastructure stocks to buy before the market recovers

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 companies with the infrastructure that supports it all will continue to charge the small but normal “fees” that are assessed for the use of their assets. It doesn’t matter much what happens on Wall Street. They are still getting paid. That’s why investors may want to look at the infrastructure space while Wall Street is broadly pessimistic during this bear market. Here are three options to consider, each offering a generous return.

1. All in one

Diversification is good for your portfolio, and it can be good for a company’s portfolio as well, especially if the goal is to build a pool of infrastructure assets. Brookfield Infrastructure Partners (BIP -0.31%)For example, it spreads its bets worldwide, with 44% of its funds from operations (FFO) coming from North America, 19% from South America, 18% from Europe, and 19% from Asia. In this way, no region’s economic ups and downs will wreak much havoc on performance. On the business front, it owns utilities, transportation, transportation assets, and data assets (towers, data centers, and fiber optic cabling). All of these are generally reliable businesses and give the company more options when buying and selling assets. No single asset will have undue influence if it encounters difficulty. Essentially, Brookfield Infrastructure is a one stop shop for infrastructure.

The return on equity is about 3.8% today and backed by a distribution that has been increased annually since 2008, and adjusted for a special distribution in 2020 (the partnership created the traditional corporate stock class for those who could not own partnerships, with entity shares distributed to existing unit holders). Distribution has grown at a compound annual rate of 10% since 2009, which is impressive for any company, let alone a company with boring infrastructure assets. Funds from operations during that period increased by a whopping 15% per year. This infrastructure operator has clearly proven that it can provide wide exposure and robust growth at the same time, making it a solid choice for anyone looking into the space. The best part: Despite the company holding steady, the stock is down about 17% from its recent highs thanks to a bear market.

2. Cleaning

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 energy to energy storage. It currently has 21 GW of capacity in its portfolio, with another 69 GW in its development pipeline. In other words, it’s looking to triple its size, and projects have lined up to make it happen. The bulk of its generation today, with about 50% of the portfolio, is hydropower, providing a solid foundation for the company’s plans to grow in other areas of the clean energy sector.

The EPS is currently around 3.6%. Brookfield Renewable aims to increase its annual dividend from 5% to 9%. Like Brookfield Infrastructure, there are actually two similar structures involved here, the other being a partnership – Brookfield Renewable Partners (BEP -0.24%). The partnership increased its dividend for a decade at a compound annual clip of 6%, adjusted for spin-off Brookfield Renewable Corporation. Given the backlog of new projects in the pipeline, management expects funds from operations to expand at a 10% annual rate through 2026. If you want to focus on clean energy, that’s a solid option, and it’s down about 16% from its highest level in nearly a year.

3. Fully organized

Dominion Energy (Dr 1.83%) He is the last name on my list today. Having sold parts of its business over the past decade, it has largely become a regulated utility providing electricity and natural gas services to 7 million customers in 13 states. Being regulated, they are given monopolies in the areas they serve, but they must get their prices and investment plans approved by the government. Growth tends to be slow and steady over time, and generally occurs regardless of what is happening in the world. That’s because regulators are more focused on ensuring reliable access to electricity and natural gas than on the ups and downs of Wall Street.

Dominion cut its dividend in 2020 after selling its pipeline business to Berkshire Hathaway. This streamlined Dominion’s business and left it expecting annual earnings growth of 6.5% over the next five years, with dividends expected to increase by about 6%. The shares are down about 13% from their earlier highs in 2022. This relatively strong performance compared to the other two here, and this performance for the broader market, is not shocking given the nature of the utility business. However, the company’s strong growth prospects, backed by $37 billion in capital investment plans (including a healthy dose of clean energy), are a key part of the story, too. If you are looking for a secure way to own your infrastructure, Dominion and its regulated business can be a good choice. The yield is currently around 3.3%.

Three ways to play infrastructure

If you want a simple one-of-a-kind infrastructure investment to cash in while the market falters, Brookfield Infrastructure Partners is a solid choice. If you prefer to focus on the clean energy side of things, Brookfield Renewable Corporation may work for you. At the same time, Dominion Energy is a name of a regulator that can provide income and dividend growth and operate a little outside Wall Street. All three have fallen thanks to the bear market, but it can be worth taking profits if you want to get reliable profits.