I’m wary of the Lloyds Bank share price. The company pays a decent dividend at the moment, but I reckon the valuation could be destined to remain low as the stock marks time while waiting for the next cyclical downturn in profits. The shares look risky to me.
But when it comes to investing for my long-term retirement portfolio, I’m keen on 3I Infrastructure (LSE: 3IN), the investment company. Generally, I reckon the sector could be a good place to be right now. 3I reckons, for example, that infrastructure assets typically have a low correlation with other asset classes, “including listed equities, real estate and fixed income.” So, in my own investment portfolio, the stock could provide decent diversification.
Stable cash flows
3I goes on to say on its website that the quality and predictability of cash flows from its investments in infrastructure companies and projects “tend to provide stable returns to shareholders over time.”
The firm targets areas such as social infrastructure, communications, utilities, transportation & logistics, natural resources and energy. There are around 27 investments in the portfolio, which means the focus looks quite concentrated. But I reckon that reflects the way the company makes sure its investments are of the highest quality with the potential to deliver decent returns.
And so far, the strategy has been successful. Over the past 12 years or so, 3I has delivered an annualised total return for shareholders of 13.4% with the share price outperforming both the FTSE 250 index and the FTSE All-Share index by a wide margin. In the past five years, the dividend has risen just over 100%.
In today’s half-year results report covering the period to 30 September, chairman Richard Laing explained that the company made a “good” start to the financial year. It made a “significant” new investment in Ionisos, which is a sterilisation facilities operator, and completed its investment in Joulz, the energy infrastructure and equipment services provider.
A pipeline of opportunities
There was a placing in October that raised around £223m before expenses and which increased the share-count by around 10%. The company used the money to repay borrowings and to “provide liquidity to fund our pipeline of potential investments.” Meanwhile, Laing reckons the dividend for the full year to March 2020 is on target for an increase of 6.4% year-on-year.
With the share price close to 290p, the forward-looking dividend yield for the current trading year is around 3.2%. Meanwhile, the price-to-tangible-asset value is running close to 1.35. I reckon the steady financial characteristics of the sector and the potential for ongoing dividend growth make the valuation attractive, and I’m keen to pick up a few shares for my long-term retirement portfolio.
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Kevin Godbold has no position in any 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.