Forget buy-to-let! These infrastructure investments yield up to 6.1%

Income investors: these infrastructure investments are tempting alternatives to buy-to-let property.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The market for buy-to-let investments has changed a great deal over the last few years and a lot of landlords have been struggling to keep up. With the introduction of recent tax and regulatory changes, buy-to-let property has become more difficult and more expensive for investors.

Keeping that in mind, I reckon would-be investors should instead consider an emerging alternative investment class — infrastructure. In a volatile environment where yields are under pressure and capital growth is scarce, infrastructure investments can offer an attractive combination of both dependable income and inflation-linked growth.

Investment trusts

Infrastructure investment trusts have proved extremely popular with investors in recent years, and that attraction has certainly continued into 2018. Market sentiment towards many infrastructure investment trusts has picked up strongly in the second half of the year, following a slight dip in confidence within the sector in the immediate aftermath of Carillion’s collapse.

Should you invest £1,000 in Tritax Big Box right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tritax Big Box made the list?

See the 6 stocks

For example, the HICL Infrastructure Company (LSE: HICL) saw its share price gain by nearly a fifth to 159p a share, from a 52-week low of 133p on 9 April. With the rise, shares in the infrastructure company currently earn investors a prospective dividend yield of 5.0%, on its target dividend per share of 8.05p for the full year.

The company, which invests in a mix of public-private partnership (PPP) infrastructure projects, earns stable cashflows from essential physical assets, such as hospitals, schools, roads and utility facilities.

Carillion’s liquidation

Carillion’s liquidation had hit HICL harder than most, as the facilities manager and construction contractor was its biggest counterparty, involved in 15 of its 115 PPP projects. The company booked a 2.2% reduction in its net asset value (NAV) earlier this year, but has since made solid progress resolving the consequences of the Carillion’s collapse.

Commercial terms have been agreed with long-term replacement facilities management subcontractors on six projects, with negotiations on a further three projects progressing. Overall indicative pricing on the replacement subcontracts was in line with its expectations and, as such, no further impact to its NAV is expected at this stage.

Meanwhile, shares in HICL are trading at a considerably smaller premium to its NAV than in the past. Although the shares have trended considerably higher over the past few months, its premium to NAV is just 6%, which is just over half its five-year average historical premium of 11%.

Infrastructure debt

Another trust to consider is GCP Infrastructure Investments (LSE: GCP). Unlike HICL, GCP Infra doesn’t invest in equity stakes in infrastructure projects, but instead in the debt issued by infrastructure projects.

As a buyer of debt, as opposed to equity, this investment trust offers a potentially less risky way to get exposure to the infrastructure asset class. Firstly, there’s substantially less operational risk involved, since equity holders, being the residual claimants of a company’s assets, usually take the first hit from any impact on profits. Meanwhile, the income earned from loans-to-infrastructure projects is generally still secured by public sector-backed cash flows. And, where possible, investments are structured to benefit from partial inflation protection.

Trading at a 10% premium to its NAV, GCP Infra currently offers a prospective dividend yield of 6.1%. With that, it’s not trying to shoot the lights out — but just to deliver a steadily increasing dividend, with low risk, some inflation protection, and low correlation against other asset classes.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Is it worth me buying Lloyds shares at around 70p after a 6% dip?

Lloyds shares have dropped 6% from their 12-month high, which may indicate a potential bargain. I took a closer look…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Investors considering a £5,500 holding in this FTSE 250 heavyweight could make £11,129 in annual dividend income over time!

This FTSE 250 global investment manager pays one of the highest yields in any major FTSE index right now. Its…

Read more »

Businesswoman calculating finances in an office
Investing Articles

With Nvidia stock down 30% in the tariff panic, should we buy now?

Nvidia stock has slumped in the new trade war, though it's still up 1,300% over the past five years. What…

Read more »

British Isles on nautical map
Investing Articles

This industrial giant is the UK’s largest business, but it’s not a FTSE 100 stock!

The FTSE 100 index is an obvious place to look for Britain's biggest companies, but the most valuable UK stock…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s a 5-stock FTSE 100 portfolio that could generate £800 a month in passive income

Mark Hartley calculates the potentially lucrative returns of five popular FTSE 100 dividend stocks invested in a Stocks and Shares…

Read more »

Investing Articles

Up 40% in 2025, is this 1 of the best cheap UK shares to consider buying right now?

Looking for UK shares to cash in on the gold rush could be a great idea to consider. Here's one…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Dividend Shares

Is it wrong for me to buy these FTSE 100 tobacco stocks?

These two FTSE 100 tobacco stocks have thrashed the wider UK market over one and five years. But would it…

Read more »

Investing Articles

Is this a great opportunity to lock in big dividend yields for a second income?

Dividend yields rise as share prices fall. That’s why many investors will see a bear market or correction as an…

Read more »