As the name suggests, these types of funds offer exposure to infrastructure projects, which are perfect income-generating assets. They tend to be designed and built to last for many decades, throwing off a steady stream of income that’s usually linked to inflation.

GCP uses a slightly different strategy, but its overall aim is the same. The company invests in infrastructure loans and has an extensive portfolio of these covering everything from education and healthcare PFI to renewable energy projects. At the end of March, the company portfolio’s contained 47 of these investments, and the largest holding accounted for 11% of assets under management.

Regular income

So far, the firm has been hugely successful in generating a regular income for investors. For six years in a row, portfolio income has enabled GCP to pay a dividend of 7.6p per share per annum. It looks as if management is planning to keep this track record alive, according to the group’s latest half-year results release.

At the time of writing, this implies the stock has a dividend yield of 6%. Unfortunately, investors will have to pay a premium to get their hands on the market-beating dividend yield. At the end of March, GCP’s net asset value per share was 112.5p.

Currently, the stock is trading at a premium of 13% to the net asset value. Still, I think the premium is worth paying to buy into this diversified portfolio of income-generating infrastructure backed assets. They should continue to throw off a steady income stream for many years to come.

Rock-solid income

Another income fund I think is worth considering for your portfolio is the Ground Rents Income Fund (LSE: GRIO). Again, as the name suggests, the fund invests in ground rents and head leases across the UK. These assets have an annuity-like cash flow, providing a steady stream of income for decades, or even centuries.

Indeed, at the beginning of August, the company told investors the weighted average duration of leases its portfolio was 345 years. On top of this, income from 70% of the group’s approximately 19,000 investments is linked to inflation and have upward-only rental increases. 

Following a review of its strategy at the beginning of August, Ground Rents reaffirmed its commitment to pay out 4p per share per annum to investors as a dividend. At the current share price, that’s equivalent to a dividend yield of 5%. 

Also, the stock is trading at a price to book value of just 0.7. This implies the business is worth substantially more than a value of the market is currently placing on it. In my opinion, this valuation gap gives investors a wide margin of safety. 

Also, a return to book value would imply an upside of 43% from current levels. That’s why I think it’s worth considering Ground Rents for your portfolio today.

The post Why I think these dividend stocks could have you laughing all the way to the bank appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

However, to be able to achieve the best returns from infrastructure, you need to do your research and choose the right company or fund for the job.

Top pick

GCP Infrastructure Investments (LSE: GCP) is one example of a top pick. GCP is the only UK-listed fund of this type focused primarily on investments in UK infrastructure debt. Debt is usually tied to infrastructure projects, which are already producing strong cash flows backed by both the public and private sectors. 

This strategy might seem risky, but it has produced surprisingly stable returns for investors over the years. Over the past five years, shares in GCP have returned 23% excluding dividends. Including dividends, which currently amount to around 1.9p per quarter, the shares have produced a total return of 77% over the period and around 12.3% per annum. 

Granted, these returns won’t turn you into a millionaire overnight, but the GCP is not designed to be the next high-growth stock. Instead, the shares are designed to produce stable returns you can count on.

City analysts expect GCP’s steady growth to continue for the years ahead. Analysts have pencilled-in earnings per share growth of 1% per annum to the end of 2018. Most of GCP’s earnings will be returned to investors via dividends. Analysts expect the company to pay 7.6p per share in dividends for the next two years, which equates to a dividend yield of 5.7% at current prices. The payout is covered 1.2 times by earnings per share, and the shares currently trade at a forward P/E of 14.6, which may seem expensive but GCP should be valued on its income, not earnings. The shares currently trade at a slight premium to GCP’s net asset value of 110.3p per share.

Income from wind

Like GCP, Greencoat UK Wind (LSE: UKW) is another slow and steady infrastructure investment you can rely on to produce a regular return for your portfolio. 

Greencoat invests in wind farms around the UK and since coming to the market at the beginning of 2013, the shares have produced a total return for investors of 48% or 11% per annum. Over the past few years, it has expanded by acquiring new windfarms and this growth should support further dividend expansion in the years ahead. Indeed, since year-end 2013, its pre-tax profit has expanded from £18.2m to an expected £91.2m for the year ending 31 December 2017. Over the same period, the per-share dividend payout is expected to grow by 2p from 4.5p to 6.5p. Earnings per share are on track to expand from 6.9p to 11.5p. 

At the time of writing shares in Greencoat support a dividend yield of 5.2% and the payout is covered 1.7 times by earnings per share, leaving plenty of room for manoeuvre if things don’t go to plan. Based on current City expectations, the shares will yield 5.4% next year and currently trade at a slight premium to net asset value of 109.8p at the end of March.  

The post 2 FTSE 250 infrastructure bargains for under £2 appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.