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Infrastructure projects are to politicians what trains are to little boys: an irresistible draw.
What’s more, politicians are drawn to infrastructure projects for many of the same reasons little boys are drawn to trains.
Infrastructure projects are big and imposing; they readily catch the eye and readily impress the impressionable, frequently unformed gullible mind. Trains are big and imposing; they readily impress the unformed gullible minds of callow males, who by nature, are attracted to big, imposing things.
Regardless of the outcome of the presidential election, infrastructure was destined to win, and it won in a big way.
Donald Trump is a big fan of infrastructure. During his campaign, he promised to spend no less than $550 billion on infrastructure if he were to become president (though I’ve read accounts were the tally was upped to $1 trillion).
A Profusion of Infrastructure Spending
Trump and the lesser politicians are drawn into the infrastructure maw by an irresistible Siren song – the fictitious “multiplier effect.” Spend a dollar on infrastructure, receive $1.50 in economic activity. Or pick your multiplier; it doesn’t matter. It’s as presentable and as realistic as anyone’s. (Every economist’s model of saved or created jobs or increased GDP growth created by government spending is an estimate, not fact. Pick your data point, pick your multiplier.)
With that bit of editorializing out of the way, we have no choice but to deal with the world as it is. The world as it is will see a profusion of infrastructure spending from 2017 on. Yes, spending bills must originate in and pass muster with the House of Representatives, but I see little push needed, given the Republicans continue to hold the House.
Make Money When Other People Spend Your Money
The Trump administration will spend borrowed money and our immediate money confiscated through taxes, whether we like it or not, so we may as well board the gravy train and pick up some extra income. And while we’re picking up extra income, let’s take a diversification tack. After all, we’re still unsure which crony capitalists are entitled to the money.
As I said, the world as it is. Here are three ETFs for income investors to consider while waiting for the inevitable infrastructure-spending jamboree, which is the world as it will be.
Infrastructure Stocks: Best Bets
What’s more basic to infrastructure than steel? Not much, which raises the profile of the Market Vectors Steel ETF (NYSEArca: SLX). The ETF invests in steel companies around the world. With steel serving as the foundation material for every large construction project, the Market Vectors Steel ETF will benefit from increased infrastructure-construction spending.
In the meantime, steel will also serve as a durable income foundation. Market Vectors pays a dividend that yields 2.8%.
Materials Select Sector SPDR ETF (NYSEArca: XLB) is off the beaten path. It’s composed mostly of large U.S. chemical companies, but these companies provide many of the adjunct ingredients used in construction materials. In short, the chemical companies infuse these construction materials with durability. Their ingredients are indispensable.
To be sure, the Material Select Sector ETF doesn’t provide the highest yield, at 2%, but it provides a durable yield. It also provides the opportunity for dividend growth.
iShares Global Infrastructure ETF (NASDAQ: IGF) is the largest infrastructure ETF on offer. As its name implies, the outreach is global. iShares has three U.S. companies in its top 10 holdings, but don’t be deterred. Many foreign companies are involved in U.S. infrastructure. We live in a global, integrated world, after all. More than a few foreign companies will capture their share of U.S. government infrastructure spending.
Besides, who cares where the money first flows, as long as it eventually flows to us? iShares Global Infrastructure pays a dividend that yields 3.2%. It offers the most remunerative flow of my three recommendations.
So, let the infrastructure spending begin. Yes, it means more money out of your pocket for infrastructure projects of dubious merit, but it can also mean more money in your pocket if you invest in the right infrastructure stocks.