Donald Trump made big promises for infrastructure spending during the campaign. Some might even call them “yuge!” But the reality since taking office has been — unlike Mr. Trump’s hands, of course — a little more diminutive. Large-scale plans have yet to be announced, and the president’s attention has been mostly on healthcare and tax reform. Infrastructure hasn’t been a major priority. A formal proposal isn’t expected until May at the soonest.
It’s pretty normal for expectations to get a little ahead of themselves for a new president, as the real world of deal making and negotiations is never easy or straightforward. And Trump’s infrastructure plans will likely face resistance from budget hawks in Congress who are concerned that the budget deficit — which has been generally shrinking since 2009 — will explode higher if Congress opens the floodgates to infrastructure spending.
We’ll see how it all shakes out soon enough. But in the meantime, I’d like to recommend three infrastructure stocks that should do well under Trump regardless of what happens with his formal infrastructure plans.
Infrastructure Stocks to Buy: Energy Transfer Equity (ETE)
The Barack Obama Administration used pipeline operators like ETE and rival Kinder Morgan Inc (NYSE:KMI) as political sacrificial lambs to keep environmental activists happy. You could see this in the stonewalling of Kinder Morgan’s Keystone XL pipeline and the halting of construction on Energy Transfer’s Dakota Access pipeline.
Well, one of the first things Trump did upon taking office was allow these two stalled projects to move forward. So, even if Trump is unsuccessful in getting a large infrastructure spending bill passed, he has already been a boon to domestic oil and gas pipelines.
Energy Transfer Equity sports a distribution yield of 6%. ETE hasn’t raised the quarterly distribution in six quarters, as it has instead focused on conserving cash and lowering its debt load. That’s OK. Energy Transfer is a premier pipeline operator, and I expect the distribution growth to return with a vengeance in the not-to-distant future.
Infrastructure Stocks to Buy: Weyerhaeuser (WY)
It might be a stretch to call a timber company an infrastructure play, but I’d consider it close enough. Lumber products are, of course, critical to construction products. And whether or not a single dollar gets spent on official federal infrastructure projects, the Trump administration has already thrown a bone to U.S. forestry companies by slapping a tariff on imports of Canadian softwood lumber.
It remains to be seen whether the tariff sticks. It could end up getting thrown out by the International Trade Commission or quietly dropped. But however it turns out, demand for lumber from U.S. homebuilders should be strong in the coming years as the Millennials finally get haircuts and real jobs and start their adult lives (better to start at 30 than never…)
This should benefit lumber companies like Weyerhaeuser Co (NYSE:WY), one of the largest publicly traded timber real estate investment trusts (REITs).
Weyerhaeuser trades for less than half of its post-housing-bust highs and sports an attractive 3.6% dividend. That’s not get-rich-quick money, but it’s nearly double the S&P 500’s dividend yield.
Infrastructure Stocks to Buy: Blackstone (BX)
A stuffy New-York-based private equity company might seem an odd addition to a list of infrastructure stocks. But Blackstone Group LP (NYSE:BX) is about to make a major splash into infrastructure investment.
Earlier this month, the company announced it is “laying the groundwork” on a new infrastructure unit that would invest in projects like toll roads and bridges. And seeing as how the investments would be for-profit, Blackstone wouldn’t necessarily need speedy action from the Trump Administration or Congress on an infrastructure plan.
Blackstone pays a dividend (technically a distribution) that varies with profitability, which can be a little off-putting to investors who are used to a consistent quarterly payout. But when times are good for Blackstone, they tend to be great.
If Trump is successful in pushing through corporate tax reform, that could be a major boon to private equity companies like Blackstone, most of which are currently organized as limited partnerships. A lower tax corporate tax rate would make the tax savings from organizing as an limited partnership less compelling and might persuade them to reorganize as corporations (Kinder Morgan did this a few years ago). That would make the private equity companies easier to understand and would eliminate the UBTI issues that can affect tax-exempt holders such as IRA plans.
As of this writing, Charles Sizemore was long ETE, KMI and BX.