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.

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.

The post Forget buy-to-let! These infrastructure investments yield up to 6.1% appeared first on The Twelfth Magpie.

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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.

Renewable energy

First up is The Renewables Infrastructure Group (LSE: TRIG), which invests in renewable energy assets in the UK and Northern Europe, including wind farms and large-scale solar power projects.

Investors are on the hunt for alternative sources of reliable income as the stock market is trading near record highs and yields on bonds remain pitifully low. With physically-backed assets and the guaranteed nature of government subsidies for renewable energy generation, investing in renewable energy projects should deliver stable, long-term returns.

Another benefit of investing in renewables is diversification. As returns from investing in such assets have historically had little correlation with traditional investments, such as stocks and bonds, the inclusion of renewable investments could give investors greater downside protection in a market sell-off.

There’s some inflation protection too, as revenues benefit from inflation linkage via Feed-in tariff and CfD subsidies, which are pegged to RPI inflation, and exposure to energy prices.

6% yield

The Renewables Infrastructure Group has been an impressive cash cow for income investors since its IPO in 2013. Those who have invested from the beginning have earned a total return — that is both the capital growth and dividend income, of 8% annualised.

At a current share price of 106.2p, the fund offers investors a current dividend yield of 6% from a quarterly dividend payout of 1.6p per share. And in line with peer renewable energy investment trusts, shares in the fund trade at a slight premium to its net asset value (NAV) of 6%.

Infrastructure

Another safe high-yielding investment trust worth a closer look is GCP Infrastructure Investments (LSE: GCP).

Infrastructure has been one of the most popular defensive asset classes in recent years, attracting billions in fund flows from sovereign wealth funds, pension companies and other institutions. With stable cash flows underpinning infrastructure assets, funds with holdings in infrastructure investments tend to earn steady and predictable income.

GCP Infrastructure Investments is somewhat different to other infrastructure investment trusts, in that it doesn’t invest in equity interests of infrastructure projects, but instead in the debt issued by infrastructure projects.

Less risky

As a buyer of debt, particularly Private Finance Initiative debt, as opposed to equity investments, the investment trust is expected to be less risky than its peers. 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.

Moreover, the fund has some hedge against inflation too as a big proportion of its assets is inflation-linked.

On the downside, valuations are a bit more expensive relative to sector peers, with shares trading at a 14% premium to its NAV. But in spite of its bigger valuation premium, the shares still offer investors a similar yield of 6%.

The post Looking for reliable high yields? Consider these dividend investment trusts appeared first on The Twelfth Magpie.

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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.

With physically-backed assets, generally reliable income streams and plenty of government support should anything go wrong, it’s easily understandable why sovereign wealth funds and private equity firms have fallen head-over-heels in love with investing in infrastructure. Thankfully, you don’t need to be ultra wealthy to invest in these projects through publicly listed, high-yielding, closed-ended funds such as NextEnergy Solar Fund (LSE: NESF) and GCP Infrastructure Investments (LSE: GCP).

Powering up for a bright future

As its name suggest, NextEnergy Solar Fund invests in solar energy plants across the UK. The fund seeks to offer a healthy dividend that rises in line with inflation by returning income from electricity sold. In the year to March the fund paid out a 5.49% yielding 6.31p dividend that was covered 1.2 times by cash income and is targeting a 6.42p dividend next year given currently predicted inflation levels.

On top of a very impressive dividend yield, the fund also offers fairly good capital appreciation prospects over the long term. This growth comes from reinvesting excess cash in new plants, as well as semi-frequent capital calls when the fund manager sees attractively priced assets for sale or believes they can expand existing sites.

The latest placing took place post-year-end in early June and raised £126.5m by issuing 115m new shares at 110p each. Together with the £100m of cash on hand prior to this share placement, the fund is moving forward with plans to purchase existing plants and build new ones for a total of around £250m.

The future for these projects is looking increasingly bright as operating costs and the price of solar panels continue to fall fast enough that the fund manager reckons its plants will be profitable, even without government subsidies within the next 12-24 months.

With the increased focus on renewable energy generation, plenty of growth opportunities and a very impressive dividend, I reckon NextEnergy Solar Fund shares could be a great income option despite trading at roughly a 10% premium to their net asset value (NAV).

A less sun-dependent option 

The GCP Infrastructure Investments fund is a more diversified option that also offers investors a very nice dividend that currently yields 5.92%. This fund invests in the debt of everything from wind farms in Northern Ireland to schools in Scotland and healthcare centres in Norfolk.

The income and principal from the long-term debt issuances it invests in are generally backed by public sector funds and are diversified enough so that no single project accounts for more than 10% of the fund’s NAV.

In addition to the steady dividend that is paid out from these proceeds, the fund also offers the prospect of capital gains through reinvesting principal repayments, as well as raising cash from investors from time to time. The latest rights issue raised £90m, which together with existing cash reserves and debt facilities allowed for the purchase of £74m of new loans, as well as striking an agreement to buy £140m of debt from the government’s privatisation of the Green Investment Bank.

This sale makes clear that the government and investors, for better or worse, both see private investment in infrastructure as the way forward. Given this political climate, plus its diversified portfolio of debt and great dividend, the GCP Infrastructure Fund is worth a closer look even at a 17% premium to its NAV.

The post Why I’d buy these 5%-yielding infrastructure stocks appeared first on The Twelfth Magpie.

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Ian Pierce 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.

Instead, investors should consider buying low volatility, defensive dividend-paying shares. A well-diversified portfolio of such shares should provide investors with steady income no matter what the referendum result may be. So, for those that need to put some money to work, the following four stocks might be worth a closer look.

Most defensive

National Grid (LSE: NG) is probably the most defensive stock in the FTSE 100 index. With a beta of just 0.32, a 1% drop in the stock market index historically only leads to an average decline in the value of National Grid’s shares of just 0.32%.

Unlike most other energy utility companies, National Grid is largely immune to volatility in energy usage and commodity prices, making the firm incredibly non-cyclical. The gas and electricity transmission company is a natural monopoly, meaning it has virtually no competitors, and earns “rent-like” returns year after year.

The stock isn’t cheap though, with shares trading at 15.4 times forward earnings. However, the stock has an attractive dividend, and management has pledged to raise the dividend by at least RPI inflation each year “for the foreseeable future“.

National Grid currently yields 4.5%, and city analysts expect its prospective dividend yield will rise to 4.6% this year, and 4.7% in 2017.

Steady returns

Staying with the utilities sector, Severn Trent (LSE: SVT) is another safe pick. Like National Grid, Severn Trent is a natural monopoly too. This means it has great cash flow visibility and low earnings volatility. Utility stocks are not known for producing massive gains, but if what you’re after is steady returns, then they should not disappoint.

Given Severn Trent’s recent strong earnings trend, I expect its shares to continue to outperform in the short term. Ofwat’s new 5-year regulatory regime does not seem to hurt profits as much as expected. In fact, Severn Trent’s full-year pre-tax profits actually rose 4.4% to £313.6m, as it benefited particularly well from new incentives to reduce leakages and improve customer service, which earned it a net real reward of £23.2m.

Severn Trent pays an annual dividend of 80.7p per share and yields 3.7% today. Of course, the payout isn’t risk free – the dividend has just been cut by 5%. But historic cuts have always tended to be modest, and the stock is certainly on the conservative end of the spectrum.

Growing dividends

3i Infrastructure‘s (LSE: 3IN) global diversification helps to insulate it from downturns in any single market. The infrastructure investment company invests in a diversified portfolio of infrastructure companies and seeks to provide shareholders with a total return of 8-10% per annum.

Historically, 3i Infrastructure has a strong track record, with an average total return of 11.7% over the past 5 years. The infrastructure company currently yields 4.2% from its dividend of 7.25p per share. And 3i has pledged to pay 7.55p per share for the coming year, giving it a prospective yield of 4.4%.

Hedge against inflation

GCP Infrastructure Investments (LSE: GCP) invests primarily in UK infrastructure debt, which is secured against long-dated public sector-backed cash flows. As a buyer of debt, as opposed to equity, GCP is like a less risky version of 3i Infrastructure. And since a significant proportion of assets is inflation-linked, the fund is a good hedge against inflation too.

At a share price of 119p, the shares currently yield 6.4%. 

The post Buy National Grid plc, Severn Trent plc, 3i Infrastructure plc & GCP Infrastructure Investments Limited to protect against volatility? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

With inflation likely to remain sluggish, many economists are now expecting that rates will only begin to rise during the second half of 2016, with some economists predicting a rise only by 2017 or possibly even later. Only earlier this month, a majority of analysts had been expecting interest rates would begin to rise by early next year.

If interest rates are expected to remain at today’s record low levels for longer, then this could be an opportunity to buy high yielding shares.

HSBC

Shares in HSBC (LSE: HSBA) currently yield 6.3% and its dividend seems to be well covered. In 2014, its dividend was been covered 1.38x by its earnings, and analysts expect cover will rise to 1.60x by 2015. HSBC’s balance sheet is strong, with the bank benefiting from a Tier 1 common equity capital ratio of 11.6% and a leverage ratio of 4.9%.

But, although the bank’s dividend does seem sustainable, HSBC’s share price may not yet have bottomed out. With more than two-thirds of its operating profits coming from Asia, HSBC is highly exposed to the slowdown in Asia. Things aren’t much better in Europe and the Americas either. HSBC lacks scale in many markets, and this explains why its cost efficiency and return on equity has been lagging many of its competitors for a number of years.

British American Tobacco

British American Tobacco (BATS) has historically been a defensive stock, as tobacco consumption is generally considered to be relatively non-cyclical. The tobacco giant has a robust track record of growing its dividends.

Between 2010 and 2012, BATS increased its dividend by 34.0%. Dividend growth has slowed since, but it still remains relatively attractive. Between 2012 and 2015, its dividend payments grew by 11.2%. Shares in BATS currently yield 4.3%, and analysts expect its dividend will rise by 5.4% this year, and 4.7% in the following year.

Royal Mail

Royal Mail (LSE: RMG) should be benefiting from the increase in on-line shopping and the loss of quite a few of its smaller logistics competitors. But this wasn’t reflected in its latest trading update. In the three months to June 28, revenues were broadly unchanged, as the loss of letter volumes had offset the gain from the increase in parcel deliveries.

Although growth is virtually non-existent, Royal Mail has its dividend well-covered. In 2014/5, it was covered just over 2.0x earnings. Shares in Royal Mail currently yield 4.6%, with analysts forecasting a slight rise to 4.7% in 2016.

GCP Infrastructure Investments

GCP Infrastructure Investments (LSE: GCP) is one of the most defensive stocks on the market. The fund invests primarily in UK infrastructure debt, which is secured against long dated public sector-backed cash flows.

The primary focus of this fund is to provide shareholders with sustainable, long-term distributions and to preserve the capital value of its investment assets over the long term. But, because a significant proportion of assets is inflation-linked, the fund should also benefit from some capital growth.

Despite the turmoil on global stock markets, the investment fund’s share price has remained stable over the past few weeks. Shares in the fund currently yields 6.4%, and trade at an 11% premium to its net asset value.

The post If Interest Rates Are Unlikely To Rise, Should You Buy HSBC Holdings plc, British American Tobacco plc, Royal Mail plc & GCP Infrastructure Investments Limited? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.