Infrastructure is the backbone of any economy, as it is crucial to transport and store water, power, energy, passengers, products, and data. A well-maintained and robust infrastructure is essential to the overall health of the economy.
However, it is expensive to build and maintain infrastructure projects, making it unaffordable for most governments. Instead, several infrastructure projects are completed in partnership with the private sector.
According to a report from Swiss Re, global infrastructure spending is forecast to surge past a whopping US$80 trillion through 2040, making infrastructure stocks the top investment options today. Here are two top TSX infrastructure stocks you can consider buying today.
Is Stantec stock a good buy right now?
Valued at $10 billion by market cap, Stantec (TSX:STN) provides services to public and private sector clients in North America and other international markets. It offers consulting services in verticals such as engineering, architecture, project management, and environmental sciences, among others.
Stantec stock has surged 267% in the past 10 years after adjusting for dividends. In this period, the TSX index has returned just 111% to shareholders.
Despite a challenging macro environment, Stantec reported net sales of $1.3 billion in the second quarter (Q2) of 2023, an increase of 11.2% year over year. Each of its business segments delivered net revenue growth for six consecutive quarters. The company also increased its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin by 20 basis points to 16.9% in the quarter.
Stantec ended Q2 with an order backlog of $6.6 billion, which was an all-time high, reflecting a 10% growth compared to December 2022. Analysts expect Stantec to increase sales by 12% to $5 billion and earnings by 13% to $3.53 per share in 2023.
Priced at two times forward sales and 25 times forward earnings, Stantec stock is not too expensive, given its growth estimates. The consistent expansion of Stantec’s earnings has allowed it to increase dividends by 9.5% annually in the last 11 years.
What is the price target for Brookfield Infrastructure stock?
Down 40% from all-time highs, Brookfield Infrastructure (TSX:BIP.UN) currently offers you a dividend yield of 5.8%. Despite the massive pullback, the TSX stock has returned 253% to shareholders since October 2013, after accounting for dividends.
Brookfield Infrastructure is forecast to end 2023 with FFO, or funds from operations, of US$3.05 per share, an increase of 13% compared to the year-ago period. Given it pays shareholders an annual dividend of US$1.53 per share, BIP has a payout ratio of around 50%, which is quite sustainable.
The drawdown in BIP stock has meant it trades a 9.3 times FFO, which is very cheap. Moreover, BIP is forecast to grow FFO per share at 12% annually in the next three years.
Brookfield Infrastructure owns and operates a diversified base of cash-generating assets across verticals such as transport, midstream, data centres, and toll roads. Its cash flows are linked to inflation, and the company continues to expand its FFO via growth projects and accretive acquisitions.
Due to its compelling valuation, BIP stock trades at a discount of 70% to consensus price target estimates.