Macquarie Infrastructure Company (MIC) dropped over 40% after it reported fourth-quarter earnings on February 21, notes Michael Corcoran, contributing editor to Gordon Pape’s The Income Report

Earnings were mostly in-line with expectations. MIC increased its fourth quarter dividend to $1.44 per share, meeting guidance of 10% growth from the previous year. So, what happened to the stock?  

The company also announced lower guidance for 2018, a cut in the dividend, plans to repurpose some assets and a strategic review of several of its businesses. Although the news was an unwelcome surprise, the market reaction was overdone, and the stock is now oversold.

The main culprit was the dividend. Although it increased the fourth quarter dividend to $1.44, the company cut the 2018 quarterly dividend to $1 per share. MIC said the cut was due to a move to fund the dividend and capital expenditures from internal cash flow, rather than using debt as it has in the past.

This is a sensible approach as the new dividend should prove to be stable and sustainable but investors who were holding MIC for the dividend were not happy and voted with their feet.


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Keep in mind that the current dividend yield is an attractive 10.4% and the previous dividend yield of 8.7% indicated that investors were not rewarding MIC for its previous dividend policy. Historically, when executing well, MIC has traded around a 6% yield or lower, which would put the stock in the mid-$60s.

The outlook is disappointing but one thing to keep in mind is that the former CEO of MIC left the company in the first quarter — companies often take advantage of CEO transitions to “kitchen sink” operations ­— a technique where a company announces all of its bad news at once, setting it up for improved results going forward with the poor performance being blamed on the new CEO’s predecessor. This could explain some of what’s happening here.

MIC has a diversified portfolio of businesses that offer defensive attributes and steady cash flow generation. While one of the businesses has hit a bump and overall organic growth going forward looks a little soft, the stock currently appears to be oversold.

Current shareholders should hold on and have patience that the new CEO will be able to improve operations, which should result in a recovery in the stock price to somewhere in the $50s. Buy.

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