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Can ASX infrastructure shares offer safe long-term returns?

ASX infrastructure shares have been some of the best performers over the past year as investors seek yield.

The lower Reserve Bank of Australia (RBA) interest rate has made cash a difficult asset to be ‘invested’ in. But many of the shares on the ASX may be too volatile for investors dipping their toe into the share market.

A middle ground could be ASX infrastructure shares – do they offer safer long-term returns with a solid yield?

Perhaps. But their share price values can fall like any other business. It’s just that their earnings may be reliable and predictable. Here are three of the biggest on the ASX:

Sydney Airport Holdings Pty Ltd (ASX: SYD) 

This business is the operator of the Kingsford Smith Airport. Its share price has gone up by 40% over the past year.

Sydney Airport benefits from various growth at the airport including passenger numbers, cargo volume, car parking fees and retail.

Passenger growth was just 0.1% during 2019, so I’m not sure that the share price growth accurately reflects the strength of the business.

However growth of Asian passengers, particularly from India, give the airport operator a promising future. Although the construction of a second airport in Sydney could slow growth in the future.

It has grown its dividend each year since 2013 and currently offers a dividend yield of 4.3%.

Transurban Group (ASX: TCL) 

Transurban is the operator of toll roads in Australia and North America. Its share price has gone up by 32% over the past year.

Every result the toll road business reports higher traffic from each city and it’s also steadily growing its tolls. It’s a powerful combination for cashflow and distributions.

The business has increased its stakes in various projects, it’s excellent at delivering projects on time and on budget, and it currently has an attractive pipeline including WestConnex.

I think it’s fair to wonder if toll roads are actually that defensive. In the event of an Australian downturn I think plenty of people would be willing to drive a bit longer in order to avoid tolls.

Transurban has increased its distribution each year since the GFC and currently offers a distribution yield of 3.9%.

APA Group (ASX: APA) 

APA is an energy infrastructure business. Its share price has increased by 28% over the past year.

It owns a large network of gas pipelines across Australia. It also owns, or has a stake in: energy storage & processing, power stations and renewable energy. It also provides asset management services to third parties.

Higher demand for energy and additional energy investments continues to grow APA’s earnings.

It has grown its distribution each year for a decade and a half, it currently has a trailing distribution yield of 4.25%.

Foolish takeaway

Each infrastructure business is quality and delivering good cashflow. However, the prices of all three seem very high and whilst their earnings may be reliable there may be a lot of capital risk at this price. I think APA would be my choice of the three for the good yield and consistent growth.

For dividends it could be a good idea to buy shares of these top income stocks for your portfolio instead which are at better values.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. 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 Scott Phillips.

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