Amid uncertain economic conditions, it’s important to consider what types of assets offer the most reliable returns.
Utilities and infrastructure assets are the kind of investments, which investors should seek, when they are looking for preservation of capital.
In Australia, there are quality infrastructure and utilities businesses listed on the Australian Stock Exchange (ASX). Here are three worth mentioning:
Transurban Group (ASX: TCL) – Transurban is the owner of some of the major toll roads in Australia. CityLink in Melbourne, Lane Cove Tunnel and Westlink M7 in Sydney and Gateway Motorway in Brisbane are a few examples of the 12 roads in its Australian portfolio. The company also has an international presence and is the owner of two roads in the Washington D.C. area U.S.
In the toll roads business, revenue is guaranteed under all economic conditions. Growing urban density and a rise in car ownership will most likely ensure that toll revenue keeps rising every year. For the September quarter, the toll revenue increased by 18.9% to $446 million as compared to last year.
During the last financial year, Transurban generated a healthy $768 million in free cash flow and used it to acquire new toll roads. Over the last five years, its share price has risen by approximately 90% and the dividend payment for the same period has doubled.
Sydney Airport Holdings Ltd (ASX: SYD) – The revenue generated by Sydney Airport is directly linked with the number of passengers walking through its gates. And since 2002, the number of passengers both domestic and international has increased every year. The most recent numbers indicate 1.9% growth in domestic and 3.3% growth in international passengers.
The lower Australian dollar is also helping to bring in more overseas visitors. The increasing prosperity in major Asian economies will continue to drive more passengers through Sydney Airport. During August, the top four nationalities arriving at Sydney airport were from China, Singapore, India and Hong Kong. Over the last five years the share price of Sydney Airport has increased by more than 100%.
Spark Infrastructure Group (ASX: SKI) – Spark Infrastructure is in the business of electricity distribution. It has significant investment and ownership interests in two major electricity distribution companies in Victoria and one in South Australia. Spark Infrastructure also has an ownership interest in another ASX listed energy utility company DUET Group (ASX: DUE).
Since 2010, it has increased its asset base by a compound annual growth rate (CAGR) of between 7% and 8%. Over that same period of five years, the share price has lifted by more than 80%.
Under all economic conditions, we need electricity, roads and airports. That is the key reason companies with exposure to such assets are considered solid investments. They may not provide huge growth potential, but they do provide a reduction in risk. So any Foolish investor should consider infrastructure stocks.
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Motley Fool contributor Qaiser Malik has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.