Many investors are drawn to two excellent ASX infrastructure shares of Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD).
Interest rates have gone significantly lower over the past year. Today's cut makes Australia's official interest rate 0.5%. Cash just isn't an option to earn good returns. It's only good for capital protection, and that's assuming inflation stays low.
The income we can get from the two most popular infrastructure stocks seems pretty good in comparison to most savings accounts.
Transurban has a distribution yield of 4%.
Sydney Airport has a dividend yield of 5%.
It's certainly true that lower interest rates should mean higher share prices, but it's almost as though investors are pricing shares for low interest rates for a very long time when there's no guarantee of that at all. Inflation could easily occur due to the coronavirus supply chain issues and cheap money.
For defensive, growing distributions I'd much invest in the shares of APA Group (ASX: APA).
APA Group owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). It owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation's natural gas usage.
How good is the APA distribution?
The infrastructure giant has increased its distribution every year for over 15 years, which is one of the best records on the ASX.
Its distribution is funded entirely from its annual cashflows, so it's very sustainable.
In the half-year result it increased its distribution by 7% to 23 cents per security, with guidance of a full year distribution of 50 cents per security, which equates to a yield of 4.5%.
The APA yield may not be quite as good as Sydney Airport's, but the airport operator is clearly going to see a noticeable drop in passengers this year because of the coronavirus. I'd prefer a slightly lower, but more reliable yield.
What will fuel further growth?
The two key areas that I see in the medium-term that will fund growth is, one, that APA is looking at North America to invest for new growth opportunities. The second area is that APA continues to invest for growth, over the past three years it has finished $1.5 billion of growth projects and it continues to invest in new projects, including in renewable energy.
Gas could take some of the energy burden as coal power stations become too old to keep operating. The Morrison government is quite supportive of gas being a good base load option and it has lower carbon emissions than coal.
Foolish takeaway
I think APA is a good, diversified energy infrastructure business with better income growth prospects than Sydney Airport and Transurban over the next five or ten years. It's not exactly great value, but it could be a reliable choice.
