Are these the 2 best infrastructure stocks on the ASX?

If you had to choose between buying two very similar companies, I would ordinarily suggest you pick the best one and then buy shares in a different sector, so as to diversify. With Auckland International Airport Ltd  (ASX:AIA) and Sydney Airport Holdings Ltd (ASX: SYD) however, the benefits are so compelling that I would suggest you buy both and hold them forever.

Both airports are at a similar stage of growth, with both management teams anticipating adding a second runway by 2025 to serve increased passenger numbers. Auckland Airport’s second runway will be added to the existing complex, while a second runway in Sydney will be built at Badgery’s Creek – and may or may not be owned by Sydney Airport, which has the right of first refusal to build a second airport in the city.

Auckland Airport is expecting to serve 24 million passengers by 2025 (up from 14.5 million currently) and 40 million passengers by 2044 – an increase of roughly 2% per year. Modest numbers to be sure, but 85% of New Zealand’s air cargo and a significant portion of total imports/exports (13%/20%) are also handled through the airport.

Sydney Airport (SYD) looks likely to see similar growth thanks to growing economies in Asia, and strong tourism will continue to be the underlying driver of revenues at both airports. Interested investors should check out the master plan to see the company’s vision for the future, and the recent annual report to see just how much earnings growth can be extracted from anaemic passenger numbers. It’s still uncertain as to whether SYD will own and operate the second airport in Sydney, but given the length of the company’s lease on the airport (until 2097), I would say that ensuring any second airport is SYD-owned makes a lot of sense.

Sydney Airport looks a little expensive at the moment, however its position as the foremost airport in Australia is unquestioned and it also pays a 5.5% dividend (unfranked). Auckland Airport pays only a 2.3% dividend (unfranked), but I expect that this should rise as both earnings and the NZD appreciate.

Foolish takeaway

Auckland and Sydney Airport are the biggest airports in their respective nations and are the only way in or out of those cities by air travel. Just as one would not visit France or Italy without seeing Paris or Rome, Sydney and Auckland are virtually a guaranteed destination for tourists to Oceania, which should cement tourist revenues from these airports essentially forever. A strong competitive advantage, strong national economies and the rise of the middle class should ensure these airports have a place in your portfolio for decades to come.

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Motley Fool contributor Sean O’Neill doesn’t own shares in any company mentioned.

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