The only thing that’s exciting about Macquarie Infrastructure Company is its yield: 5.65%. But its revenue stability, though not exactly exciting, is at least heartwarming. And, given how undervalued Macquarie is and the potential for its stock price to continue upward as the U.S. economy continues to improve, we can also say it’s full of potential. When its price-to-earnings ratio of 12.5 is compared with the industry average of 14.6, that’s a big discount.

Those three factors together make it ideal for our Global Income Edge portfolio, as they mean great income, safety and potential for an excellent total return.

Australia-based Macquarie owns and operates four major businesses in the U.S. that generate high, consistent levels of cash due to long-term contracts to supply essential services:

Atlantic Aviation, one of the largest operators of general aviation services, which provides fuel and hanger services to the noncommercial aviation sector—usually high-end personal jets. If you own a Learjet or a Gulfstream, it’s likely been serviced by Atlantic Aviation. Then again, if you own one of those, your personal wealth manager is reading this issue of GIE, not you. This business is benefiting from increased takeoffs and landings out of its operations at 69 airports in the U.S. 

International-Matex Tank Terminals (IMTT), one of the largest independent bulk-liquids-terminals companies in the U.S. It owns 10 terminals in the U.S. and has interests in two terminals in Canada. It stores and distributes 45 million barrels of liquids such as petroleum, chemicals and animal oils.

Hawaii Gas, the exclusive provider of a gas utility to the islands of Hawaii, and the largest propane provider to residences and businesses there. This business has almost no competition on the islands, and as a distributor its exposure to price swings in the commodity market is limited.

Macquarie’s Contracted Power unit owns facilities that generate about 96 megawatts (MW) from solar and wind power. The company recently added more power generation when it increased its stake in Idaho Wind Partners (IWP) power-generation project to 72%.

Because Macquarie provides vital services and has long-term contracts, its revenues are stable and insulated against the volatility that comes with an economic downturn. While it’s currently riding high from the improving economy, management has taken steps, such as reducing leverage in its aviation business, to soften the blow if conditions turn sour.

Building the Business

Macquarie Infrastructure isn’t a contented cash cow—it’s in expansion mode. Management plans to add growth projects to its IMTT and Hawaii Gas business in the next 18 months. It will spend $43 million on IMTT for the construction of additional storage capacity.

Macquarie will put $12.8 million into reducing fuel costs in Hawaii by shipping liquefied natural gas to replace about 30% of the synthetic natural gas it’s using right now. These gas deliveries are expected to begin sometime this year.

Management is also open to expanding into businesses outside its four core pillars. However, it says the best use of its cash now is expanding its existing businesses. It’s also not averse to selling off businesses. In September 2014, the company sold its 50.01% controlling interest in Chicago Thermal, a direct-energy business, for $270 million. That cash will be used to grow its other businesses.

Generous Distributor

Paying strong dividends is baked into Macquarie’s corporate culture. The company distributes about 80% to 85% of its free cash flow as dividends, similar to the percentage paid by a master limited partnership.

In the third quarter, MIC’s board of directors authorized a cash dividend of 98 cents per share, which was its fourth consecutive quarterly dividend increase. The quarterly payout is 11% higher than a year ago. In fact, the company is such a prolific dividend payer that its current payout is almost five times the amount paid in 2011. Management has also said that it expects to boost dividends at a rate of 12% a year for the next two years.

Macquarie’s expected free cash flow should be able to cover this. It has already announced its outlook for free cash flow in 2015—an increase of about 14%, to $5.25 per share.

Here’s an accounting change that may increase the stock price: The company has announced it is considering a legal conversion to a C corporation from its current status as an LLC. Management believes the conversion will allow it to be included in major indexes such as the Standard & Poor’s 500-stock index, in which case mutual funds that sell index funds would be compelled to invest in it.

With its generous yield and high price appreciation potential, Macquarie is a buy up to $72.