What exactly are "toll road businesses"?

Toll road businesses are companies that own essential infrastructure (physical or digital) and collect fees from users who need to access or use that infrastructure. Just like a highway toll booth collects money from every car that passes, these companies collect fees on energy flowing through pipelines, data moving through networks, or payments processed through their systems. They typically don't produce goods or services themselves but provide the critical pathways that others must use.

Why are dividend yields important for these types of stocks?

Dividend yields represent the annual dividend payment as a percentage of the stock price. For toll road businesses, their stable, recurring revenue models often allow them to pay consistent dividends to shareholders. Many investors are attracted to these stocks specifically for this income potential, as the essential nature of their services helps maintain dividend payments even during economic downturns.

What are royalty and streaming companies?

Royalty and streaming companies (like RGLD, FNV, and OR in this collection) provide upfront funding to mining operations in exchange for the right to purchase a percentage of future production at predetermined prices or to receive a percentage of the mine's revenue. This is similar to a toll road business model because they collect a portion of the value that flows through without taking on the operational risks of mining. They essentially own a "toll booth" on the mine's production.

How do these businesses protect against inflation?

Many toll road businesses have built-in inflation protection through contracts that allow for regular price increases tied to inflation rates. Additionally, as the owner of essential infrastructure that's expensive to replicate, they often have pricing power to pass along higher costs to their customers. During inflationary periods, the physical assets they own (like pipelines, towers, or data centers) typically increase in replacement value as well.

What risks should I be aware of when investing in infrastructure companies?

While these businesses often have stable revenue, they face several risks: regulatory changes that could affect pricing power, high debt levels used to finance infrastructure, technology disruption that could make certain infrastructure obsolete, and interest rate sensitivity due to their capital-intensive nature. Additionally, specific risks vary by sector—energy companies face environmental concerns, while digital infrastructure companies may face cybersecurity threats.

17 handpicked stocks

Toll Road Businesses

These gatekeepers of modern commerce own indispensable infrastructure and collect fees on the flow of goods, energy, and data. Our analysts have selected companies with durable, recurring revenues from hard-to-replicate physical and digital networks.

Han Tan | Market Analyst

Updated 2 days ago | Published at जून 17