3 Infrastructure Stocks for Growth and Dividends
The U.S. may be on the verge of a major infrastructure spending plan, and a looming infrastructure bill could be a major boost to the nation’s infrastructure stocks.
Infrastructure across the country is in need of repair. Investors should always be on the hunt for potential growth catalysts.
Indeed, one potential catalyst is underway today with President Joe Biden’s infrastructure plan. At this stage it is a framework and not law, but should it become law, the major construction-related components of the framework stand to benefit a wide variety of stocks.
Investing in themes can be difficult given news gets priced into stocks very rapidly. However, because the infrastructure bill is still just a framework and the specific details haven’t been worked out, there are many companies that stand to benefit from it should it come to fruition.
The three companies we’ve highlighted here stand to be sizable beneficiaries regardless, as construction will undoubtedly be a massive portion of the bill. We therefore see these three stocks as years-long beneficiaries of increased infrastructure spending.
So let’s take a look at three dividend names we think have the potential to see a sizable positive impact should the plan come to fruition. And in the meantime, all three stocks pay dividends to shareholders, and raise their dividends on a regular basis.
Infrastructure Stocks: Nucor Corporation (NUE)
Our first stock is Nucor, a manufacturer of steel and steel products. It operates three segments: Steel Mills, Steel Products, and Raw Materials.
Through these segments, Nucor produces hot-rolled, cold-rolled, and galvanized sheet steel products, beams, H-piling, bar steel products, hollow structural steel, tubing, joists and girders, concrete reinforcement and more.
The company was founded in 1958 and produces $32 billion in annual revenue, and trades with a market capitalization of $29 billion.
In addition, Nucor has one of the longest dividend increase streaks in the market today at 48 years. This places Nucor on the exclusive Dividend Aristocrats list.
Nucor stands to benefit from a potential infrastructure bill because it has heavy exposure to many different portions of the plan from higher demand from road building, bridge building, public transit, electric vehicle infrastructure, airport remodeling, ports and waterways spending, water infrastructure and more.
Steel makers look to be potentially the biggest beneficiaries of the bill as it exists today, and that’s great news for Nucor, which is one of the largest steel makers in the US.
Nucor’s earnings are slated to be well ahead of historical norms this year because of pent-up demand from the world’s economy shutting down for COVID-19 last year.
Looking forward, we expect a base case of 2.5% earnings-per-share growth, which would potentially be significantly bolstered by the infrastructure bill, as demand for most of Nucor’s products would rise as a result.
This would also help Nucor continue to raise its dividend, and at potentially higher rates if earnings growth improves. Nucor’s yield today is 1.8%, but its payout is quite safe and does have the 48-year streak of dividend increases.
Caterpillar Inc. (CAT)
Our next stock is Caterpillar, a heavy machinery manufacturer based in Illinois.
Caterpillar produces its famous yellow-adorned machinery in a wide variety of configurations that serve its three primary markets: construction, resources, and energy & transportation.
The company produces a huge variety of machinery for various purposes, including those used for road building, grading, pipe-laying, building out telecommunications infrastructure, forestry clearing, generators, locomotive engines and more.
The company was founded in 1925 and has paid rising dividends for a very impressive 27 consecutive years. Like Nucor, Caterpillar is on the Dividend Aristocrats list. Caterpillar produces about $49 billion in annual revenue, and trades with a market capitalization of $119 billion.
Caterpillar stands to benefit from a potential infrastructure bill primarily through its construction and energy & transportation businesses.
The company builds machinery that would serve a variety of purposes under the construct of the bill, including roads, bridges, airports, ports and waterways and energy infrastructure.
All of that requires heavy machinery to complete and Caterpillar stands ready to meet that demand.
We see the infrastructure bill as potentially bolstering our estimated growth rate of 8%, because should it come to fruition, Caterpillar would certainly see higher demand for a wide variety of its product catalog.
The current yield is 2.1%, and like Nucor, we think the bill could provide the catalyst for a potentially higher dividend growth rate.
Infrastructure Stocks: Martin Marietta Materials (MLM)
Our final stock is Martin Marietta Materials, a building materials company based in North Carolina.
Martin Marietta supplies the construction industry with products like crushed stone, sand, gravel, ready-mixed concrete and asphalt, paving products, chemicals and more.
The company serves residential and commercial construction markets, as well as railroad, agriculture, utilities, and other infrastructure markets.
Martin Marietta produces just over $5 billion in annual revenue and trades with a $22 billion market capitalization. Its dividend increase streak is much more modest than the other two at just five years, and its yield is low at 0.7%.
From a pure dividend stock perspective, therefore, it is somewhat less attractive than the other two.
However, given that substantially all infrastructure projects require the use of things like stone, gravel, concrete, asphalt, and related products, Martin Marietta stands to gain more on a percentage basis.
That is because its revenue is heavily leveraged to construction activity, and the infrastructure bill would directly target essentially all of its revenue base. Given this, we see Martin Marietta as a sizable beneficiary of a potential bill.
We expect Martin Marietta to produce double-digit growth for the foreseeable future, and should the infrastructure bill become a reality, we’d expect upside to that, which would help lower the dividend payout ratio, and help the company boost its dividend at higher rates.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
