Infrastructure stocks are some of the most promising yet most overlooked equities on the TSX today. Offering high yields and cheap valuations, they are, in many cases, better than the most popular TSX stocks, such as tech stocks and utilities.
To be sure, infrastructure isn’t a “high-growth” sector. Many of Canada’s biggest infrastructure companies are over a century old and have the kind of growth you’d expect of such ancient organizations. However, they are so cheap that the lack of explosive growth is not necessarily an impediment to profitable investing in them.
In this article, I will explore three TSX infrastructure stocks that offer growth as well as yield.
Enbridge (TSX:ENB) is a Canadian pipeline company that transports crude oil all over North America. It also supplies a whopping 75% of Ontario’s natural gas. Enbridge is an infrastructure company in the sense that it primarily “rents” its pipelines out to clients, who sign up to use them for terms ranging from 10 to 20 years. These long contract terms give Enbridge a high level of revenue stability.
Enbridge’s most recent quarter was a mixed showing. In it, the company delivered $1.3 billion in adjusted earnings, down 7.1%. However, it did $3.1 billion in cash from operations, which was a 47% improvement from the same quarter a year before. The reason that earnings went down while cash flows went up was because of some non-cash charges, such as a $760 million fair value loss and a $1.3 billion derivatives loss. Excluding these one-time factors, Enbridge did well in the third quarter.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIPC) is a Canadian company that invests in infrastructure. Its assets include pipelines, utilities, data centres, railroads, telecommunications networks, and more.
BIPC is more a pooled investment vehicle than an operating company. It is part of the Brookfield Corporation, Canada’s most important global asset management firm.
In some ways, Brookfield Infrastructure Partners has performed well in recent years. This year, its revenue is up 13.2%, its earnings are up 246%, and its assets are up 155%. Over the last three years, it has compounded its revenue at 12.8%, its operating earnings at 16.4%, and its assets by 40%. Those are pretty good results.
Short-seller Keith Dalrymple has accused BIPC of exaggerating some of its results, and some take his claims seriously. After reading the report, I think that Dalrymple is mostly just making too much of a big deal about BIPC’s accounting choices. If you’re worried that he might be right, avoiding BIPC might be the best move for you.
For the more adventurous out there, SNC Lavalin (TSX:ATRL) could be a stock worth considering. It’s a Canadian construction contractor that builds vital infrastructure in Canada and around the world. Unlike the other two companies on this list, it does not own infrastructure. Instead, it builds infrastructure for others.
The business has been struggling over the last five years but seems to have hit its stride in 2023. This year, the company grew its revenue by 5.8% and its earnings by 178%. It was moderately profitable in the trailing 12-month period with a 1% net margin. Obviously, this isn’t Canada’s best company, but it’s so out of favour now that it trades at just 0.88 times sales, while having a 0.47 price-to-earnings-to-growth ratio. I wouldn’t say to buy this stock, necessarily, but it merits further research.