There are several infrastructure ASX shares that could be worth considering. But which is the best one?
Infrastructure can tick a lot of the boxes that you want in a business: unique assets, good pricing power, strong cash returns and long term growth potential.
Here are some ideas:
Transurban Group (ASX: TCL)
This is a major owner, operator and builder of toll roads across Australia and North America. It has good pricing power as it tolls regularly increase. City populations are (or were) steadily increasing and this was helping drive traffic volumes higher. Traffic was generally consistent (with growth) as people appreciated the time-saving aspects for getting to school, work or for other purposes.
COVID-19 is having some interesting impacts. Earlier in the year there was a clear decline in traffic, but now it may benefit if more people avoid public transport.
Transurban is currently looking to pay out a lot of its free cashflow generation, so the distributions in 2021 may be reasonable. However, there are still risks when it comes to executing on its current construction projects.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
Sydney Airport has obviously seen a major reduction in passenger volumes because of COVID-19 restrictions and impacts. It may be some time before international borders are open to the whole world. Though Australia may slowly open up to other Asian countries that have done very well with COVID-19. New Zealand passengers can now fly to Australia.
If domestic travel picks up with Australia’s strong COVID-19 position and demand for local holidays, and the border is opened up to safe countries, then Sydney Airport could see a recovery of some of the passenger numbers. However, there won’t be much of a dividend whilst passenger numbers are still down by over 90%.
APA Group (ASX: APA)
This infrastructure ASX share isn’t as popular as the above two, but it’s the one that has been least affected by COVID-19. APA has a large gas pipe network across the country and it carries around half of the country’s natural gas.
FY20 saw earnings growth, though FY21 may see a slight decline in earnings unless there’s a rapid pickup in activity from its customers. Even so, APA is predicting that its distribution will continue to be reliable during this period. The trailing distribution equates to a 4.6% distribution yield.
Magellan Infrastructure Fund (ASX: MICH)
There aren’t that many infrastructure options on the ASX alone, so you could consider a fund which invests in global infrastructure ideas.
In the latest monthly update it said that its biggest holdings were: Transurban, Atmos Energy, Red Electrica, Eversource Energy, Sempra Energy, Vopak, Enbridge, Crown Castle International, Excel Energy and American Water Works.
For the diversification, and the ability to change holdings, I think this could be the best choice because of the highest quality global infrastructure picks and that fact it has comfortably outperformed the S&P Global Infrastructure Net Total Return Index over the longer-term.
