Our Top Pick Yields 6.5%, and Growing
Our favorite Global Income Edge Best Buy remains Australia-based Macquarie Infrastructure (NYSE: MIC), with its strong and growing dividend, currently 6.5%. As the U.S. economy continues to grow, it’s essential infrastructure services will continue to benefit from this recovery.
The firm owns and operates four major businesses in the U.S.: Atlantic Aviation, which provides fuel and hanger services to the noncommercial aviation sector; International-Matex Tank Terminals (IMTT), one of the country’s largest independent bulk-liquids-terminals companies; Hawaii Gas, the state’s largest liquefied petroleum gas distributor; and Macquarie’s Contracted Power, which owns the natural-gas-fired 512-megawatt (MW) Bayonne Energy Center (BEC) and solar and facilities.
Thanks to recent acquisitions. which include 50% of its IMTT segment it hadn’t already owned and its BEC facility, the company has posted impressive growth in 2015.
In the third quarter, the company reported revenues rose 7.0% to $415.7 million, versus the same period in 2014. Revenues for the first nine months are up 30.9% versus the comparable period in 2014.
Third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) increased 45.6% to $160.3 million mainly as a result of an increase in gross profit. The strong growth is due to the absence of acquisition-related costs that hurt the previous quarters.
Macquarie realized strong performances from most of its businesses
Atlantic Aviation, which operates at airports all-over the U.S., delivered a strong performance due a pickup in general flight activity.
The acquisition of seven airport operations since April also helped drive increased business.
IMTT, with its acquisition, now has full ownership of more than 45 million barrels of storage capacity as well as ten bulk liquid terminals in the U.S. and two more in Canada.
Contracted Power and Energy’s solar and wind assets of its segment struggled due to lower solar and wind resources in the western half of the U.S., generating FCF of $2.58 million compared to $4.64 million in 2014.
In October, MIC acquired a solar power generation facility in Hawaii that will start operations in mid-2016.
Hawaii Gas’ third-quarter volume of gas sold was flat with the prior year’s quarter but has increased 2.5% year-to-date versus the same nine-month period in 2014 due to continued growth in commercial consumption driven by tourism.
We first spotlighted Macquarie in January and as an income play it hasn’t disappointed, hiking its quarterly dividend recently by 14% compared to last year. While Macquarie’s stock currently trades flat at about $70 with January levels, expect this to improve as investors have bought its shares up at a rate consistent with its dividend growth for the past five years.
With a yield of 6.5%, Macquarie Infrastructure is our #1 Aggressive Buy up to $77.
Stock Talk
George Alexander
Is this company turning a profit or making just enough money to pay the hefty dividend? The company doesn’t seem to be making enough to even show a profit. Last quarter I think they posted a loss.
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Richard Stavros
Dear George –
Please excuse the delay in responding.
The company’s coverage of the dividend is 1.33x. And the distribution over the last 12 months has been 74.5%. Further, since 2007 free cash flows per share were up 13%.
Now, the company has had some negative free cash flow quarters – but that has been related to the timing of capital expenditures – which if you have followed utilities or IPPs is a common occurrence as capital expenditures are typically lumpy.
And capital expenditures today for new projects means higher earnings tomorrow. The firm reports that it has $1.2 billion in dry powder that it can access for new infrastructure investments. Most of the money for investment comes from its operating earnings (80%) and then supplanted by credit facilities. The company typically deploys $250 million per year.
What I like about MIC is that its assets are diversified in areas that have a special niche. And through contract, MIC is managed by one of the world’s top infrastructure groups, investment bank Macquarie Group.
Finally, according to S&P Capital I.Q. Estimates, the company should book net Income of $195 million (19.65%+) by the end of 2016 and net income of $216 million by the end of 2017 (20.29%).
I hope that was helpful.
Richard
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