Infrastructure is a broad category of asset class. It's fair to say that most infrastructure is a key part to society, depending on what the infrastructure's job is.
Infrastructure usually has a monopoly-like presence in the area it's in. Think of Sydney Airport Holdings Ltd (ASX: SYD), it operates the only large commercial airport in Sydney, there is no way to fly to Sydney without going to Kingston Airport from overseas. It's going to be around a decade before the second airport is constructed.
Transurban Group (ASX: TCL) doesn't have as much of a monopoly because other roads exist. However, if you want to get somewhere by the quickest route then you will probably take one of its roads.
Infrastructure around the world has similar importance. The Magellan Infrastructure Fund (ASX:MICH) is run by Magellan Financial Group Ltd (ASX: MFG). It has investments in the UK's National Grid, Aeroports De Paris, Enbridge Inc and many others. All of these assets are integral parts of the countries they operate in. However, it comes at a price – the management fee is 1.05% per annum.
Infrastructure has been a great asset class to own over the last two decades. It generates pleasing income and falling interest rates have helped it grow in value.
However, interest rates around the world are starting to rise again and this could have a negative effect on asset values. If you're not just looking for income, declining asset values could hurt the overall return, perhaps more than the income produced.
Foolish takeaway
Out of all the ASX-listed possibilities, I think my favourite long-term option would be Auckland International Airport Ltd (ASX: AIA). It's currently trading at 36x FY17's estimated earnings with an unfranked dividend yield of 2.69%. This is expensive, so I'm hoping for a cheaper entry price down the track.
In the meantime, I'm thinking that these dividend stocks could be the best to buy at the current prices.
