In the current environment of historically low interest rates, dividend stocks are the obvious way to boost portfolio income. Infrastructure companies have been a key area of focus for investors, due to their often monopoly style assets and stable distributions.
The low interest rate environment has also meant cheaper debt financing for infrastructure companies, boosting their profits and dividends.
But is it too late to invest?
All investments have a degree of risk – the key is to invest when the current price offers a margin of safety. With this in mind, despite their quality assets, it is hard to make the case for a current margin of safety for the following infrastructure companies.
Transurban Group (ASX: TCL)
Transurban operates an impressive portfolio of toll roads, with an interest in 13 in Australia, and two in the US.
Shares are up nearly 18% year to date following strong revenue growth for the first half of the financial year. With a growing population and busier roads, revenue is likely to keep rising well into the future.
Going forward, Transurban deserves a place in the portfolio of any investor looking for stable income, however, after a 10% run up in the last month, valuations are starting to look stretched.
Sydney Airport Holdings Ltd (ASX: SYD)
Anyone who has been through the Sydney Airport recently will know how busy it is. Both domestic and international passenger numbers have increased every year in the last decade. More passengers mean more revenue for Sydney Airport.
The appeal of investing in Australia's busiest airport is no secret, and shares are priced accordingly – up 35% in the last 12 months and trading at an all-time high.
Sydney Airport intends to distribute 30 cents per share in dividends in the coming year, representing a yield of around 4%.
APA Group (ASX: APA)
APA is Australia's largest owner of oil, gas and electricity networks and continues to acquire energy assets around Australia. Shares are up over 100% in the last five years, however they have been flat over the last 12 months.
APA's dividend has grown by around 6% a year over the last decade. Analysts are forecasting a dividend of 42 cents per share, implying a current yield of around 4.5%.
APA is well positioned to be a solid long term investment, but does not represent great value for new investors at the current price of $9.20.
Argo Global Listed Infrastructure Limited (ASX: ALI)
Investors looking for exposure to a diversified global portfolio of infrastructure assets could consider the Argo Global Listed Infrastructure fund. AGLI listed in July last year and is diversified across countries and types of infrastructure assets, including airports, water, railways, toll roads, telecommunications and energy.
Shares are down around 10% since listing. Trading at $1.80, it is at a discount to its underlying net assets of $1.95 per share.
While the fund provides exposure to an interesting mix of assets, a management fee of 1.2% is a large price to pay.
Foolish takeaway
While interest rates remain low, the strong demand for stable dividends from infrastructure stocks is likely to continue – but this appeal means there is a risk that these shares might become overvalued.
In my view, this has already happened to some extent, and investors are better off looking elsewhere for bargains.
A great place to start is to check out the current 3 Best Dividend Buys from the Motley Fool's expert dividend investor.
