Macquarie Infrastructure: Building Dividends

08/30/2017 2:56 am EST


Stephen Mauzy

Income-Investing Specialist, Wyatt Investment Research

One of our high yield recommendations stands above the rest: Macquarie Infrastructure (MIC), an energy and aviation infrastructure company, is our most enticing high-yield recommendation, notes income expert Stephen Mauzy, contributing editor to High Yield Wealth.

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We first recommended Macquarie in December 2013. Fifteen quarterly dividends have been paid since our initial recommendation. Every quarterly payment has been greater than the previous payment.

Macquarie has given us nothing but dividend growth -- not every year, but every quarter. Macquarie has also given us quarterly dividend growth with a high starting yield. 

Macquarie shares yield 7.7%. The yield is ridiculously high given Macquarie’s track record. And yet Macquarie shares are down this year. The stock is down 6% so far in August alone.

Some investors were miffed by the latest quarterly numbers. The revenue numbers were okay. Revenue posted at $439 million for the quarter, a 10.4% year-over-year increase.

EPS posted at $0.32, a 33% year-over-year increase. But investors expected more. The consensus expected EPS to post at $0.49. Reported earnings shouldn’t be the focus, though; reported cash flow should be.

Management has been busy buying and selling assets over the past year. Macquarie has incurred higher non-cash charges related to depreciation and depletion that have little impact on the company’s ability to support the dividend.

Macquarie’s financial results for the quarter in 2017 were characterized by improved cash flow. Free cash flow increased by 11.7% for the quarter. Free cash flow growth is consistent with management’s guidance for a 10% increase in dividends for the year.

Macquarie will pay its next quarterly dividend in November. We expect the streak to extend to 16-for-16: Sixteen consecutive quarterly dividends; 16 consecutive quarterly dividend increases.

We also expect the next quarterly dividend increase to lift the payment to $1.41 per share, which would lift the yield close to 8% at the current market price. Dividend growth and high starting yield is a tough combination to beat. 

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