Infrastructure shares are still considered a bit of a niche area of investing. They are often mentioned in the context of their dividend yields, but I believe that infrastructure shares deserve to be used in every portfolio, and not just for income.
What are ASX infrastructure shares?
Let me explain – infrastructure assets refer to companies that own essential public assets that form the backbone of commerce in the economy. Think power lines, airports, roads, and water pipes. Consumers using these assets often prefer to pay 'rent' for the use, rather than buying them outright, much like a house. This makes these assets and the companies that own them a unique opportunity on the ASX.
Companies like Woolworths Group Ltd (ASX: WOW) or JB Hi-Fi Limited (ASX: JBH) make profits by selling a product (or products). Once the customer pays, they own the product. The companies' successes are determined by consumer preferences, market share, economic conditions, and other external factors.
However, take an infrastructure company such as Transurban Group (ASX: TCL). Transurban operates a network of 16 toll roads around Australia as well as the US and Canada. Consumers (in this case, drivers) pay a fee every time they use a Transurban toll road – if a driver uses the road twice, they pay the 'rent' twice. No one is buying anything from Transurban, they are simply paying to temporarily use Transurban's assets. This gives Transurban a huge advantage compared with other companies. Demand for its services is highly inelastic – meaning relatively unaffected by pricing changes, economic conditions or other factors that might adversely affect other ASX businesses.
Sydney Airport Holdings Pty Ltd (ASX: SYD) is also an excellent company to look at. The company operates Sydney's Kingsford-Smith international airport, which happens to be the only international airport serving Australia's largest city (at least until the Western Sydney Airport is completed in 2026). Any airline company wanting to take-off or land planes at the airport pays 'rent' to Sydney Airport Holdings for the use of the runways. Having a virtual monopoly over Sydney's airspace gives Sydney Airport Holdings a massive and unique competitive advantage or 'moat' that the company can leverage to ensure ongoing profitability.
Foolish Takeaway
Owning infrastructure companies such as Transurban or Sydney Airport in your portfolio can add a layer of defensive and income-producing assets that do not respond to economic shocks in the same way that other ASX shares might. Regardless of what's happening in the economy, cars will still be on the road and planes in the sky and, in my opinion, every investor should take advantage of it.
If pure income-producing shares are more your thing, continue reading to discover our top 3 ASX dividend shares for 2019.
