Infrastructure businesses are typically sources of sustainable and growing long-term cash flow, because they are usually not subject to the vagaries of market cycles, explains Michael Corcoran in The Income Investor.
Infrastructure operations such as airports, toll roads, and energy production and transportation often have a high degree of financial predictability and high barriers to entry.
Macquarie Infrastructure (MIC) was founded in 2004 and owns, operates, and invests in infrastructure businesses. The market cap is over $6.9 billion and dividends are expected to grow 14% for the next two years.
Its businesses consist of airport services, bulk liquid terminals in the US, synthetic natural gas and liquefied petroleum gas processing and distribution businesses, as well as solar and wind power generation facilities.
All of the businesses offer the potential for growth either organically or through acquisitions.
MIC is a unique company because it consists of a number of different businesses. This might make it unattractive for some investors because of perceived complexity.
Nevertheless, MIC has a diversified portfolio of businesses that offer defensive attributes and steady cash-flow generation.
This will drive steady dividend growth and provide some protection from commodity volatility barring a sudden and sustained increase in oil prices.
The company distributes 80%-85% of its free cash flow to shareholders but is not a pass-through entity like a master limited partnership. The company completed its conversion from an LLC to a corporation on May 21.
The company temporarily suspended dividends in 2009 and 2010 to accelerate debt reduction before resuming them in 2011.
Dividends have grown rapidly since then, increasing from $0.80 in 2011 to $2.20 in 2012, $3.35 in 2013, and $3.89 in 2014.
The company has projected 14% annual dividend growth (up from previous guidance of 12% growth) through to 2017 and this guidance is thought to be conservative.
With solid cash flow from growing infrastructure businesses like contracted power and energy, gas processing and distribution, bulk liquid terminals, and airport services, MIC is a good choice for investors seeking sustainable and growing dividend yield.
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