Macquarie Infrastructure Company LLC (NYSE:MIC) owns, operates and invests in a diversified portfolio of infrastructure businesses that provides basic services, facilities and technology to businesses and individuals in the United States. The Company's businesses consist of bulk liquid terminals, an airport services business, a gas processing and distribution business, and a portfolio of contracted power and energy investments.
MIC is the Industrials sector winner and is ranked 14th in the May 2015 edition of my 10 Dividend Growth Stocks article series. The company has a 5-year streak of consecutive dividend increases. It pays quarterly dividends of $1.07 per share in the months of March, June, September and December.
My buy price secures in an initial yield on cost (YoC) of 4.98%.
MIC started paying dividends in June 2005, but suspended payments in 2009 when the recession hit. The company resumed dividend payments in May of 2011 with quarterly dividends of 20¢. Over the last 4 years, MIC raised its quarterly dividend regularly and substantially. Now it pays a quarterly dividend of $1.07 per share:
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The recent track record of dividend increases is one of the reasons I like the stock. Whether MIC can maintain this trajectory is an open question. However, in a portfolio now containing 45 stocks, I think it is worthwhile to include a few stocks that have a somewhat riskier profile.
Another reason I like MIC is its current dividend yield, which currently hovers around 5%. I'm curious to see how the yield curve will change over the next few years.
The following 10-year price chart shows MIC's remarkable recovery since 2009. In fact, MIC outperformed the S&P 500 by a healthy margin of better than 2-to-1.
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An investment in MIC 10 years ago would have returned 274%, including dividends. That equates to a compound annualized growth rate of 14%, which is quite impressive!
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Analysis of MIC
My fair value estimate of MIC is $101.77, so I bought shares at a discount of about 18%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.
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MIC passes the following of my selection criteria:
- Dividend yield exceeds 2.50% (4.98%)
- A streak of at least 5 years of dividend increases (5 years)
- Chowder rule: Dividend yield plus 5-year CAGR exceeds 8% (47.13%)
- Earnings per share (EPS) percentage payout is less than 40% (27.96%)
- Price to earnings ratio (P/E) is less than 20 (TTM 5.84x)
- P/E to annual EPS growth (PEG) ratio is less than 2 (0.81)
- Price discount is at least 5% of fair value estimate (18.37%)
- Debt to equity ratio is below 50% (86%)
- 5-year CAGR is at least 10% (n/a)
- Reasonable confidence in continued dividend growth (No)
Based on these statistics, MIC earns 4 out of a possible 7 stars: (****---)
Other ratings for MIC
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| *(Growth • Value • Momentum) |
Concluding Remarks
In my view, MIC is a somewhat riskier dividend growth stock. Having suspended its dividend in 2009 and 2010, the company just earned back Dividend Challenger status when it raised its quarterly dividend to $1.07 per share on 5 May 2015.
As a Delaware Limited Liability Company, interest in MIC is quite narrow. The pending conversion to a Delaware Corporation could generate wider interest, especially if MIC happens be included in mainstream indices as a consequence. That could also be a catalyst for continued share price strength.
According to the Analyst Ratings Network, MIC has a consensus buy rating with a price target of $86.40. Four analysts have a buy rating and one analyst has a hold rating. Zacks recently upgraded MIC from a strong sell rating to hold, while RBC Capital and Oppenheimer both have outperform ratings and price targets of $94 and $90, respectively.
MIC missed analyst expectations in the company's latest quarterly results, delivering first-quarter earnings per share of -$1.22 instead of the expected $0.66. Revenue also came in below expectation at $398.5 million (missing by $43.99 million), though revenue increased 44.3% year-on-year. The earnings miss stems from management performance bonuses being issued in the form of shares. Free cash flow during the first quarter was $1.68 per share versus $1.15 in the prior comparable period.
MIC targets a dividend payout ratio of 80-85% and if cash flow projections hold up, further dividend increases can be expected. The dividend growth prospect, along with MIC's attractive current yield, are the main reasons why I'm prepared to accept the somewhat riskier profile.
As a Delaware Limited Liability Company, interest in MIC is quite narrow. The pending conversion to a Delaware Corporation could generate wider interest, especially if MIC happens be included in mainstream indices as a consequence. That could also be a catalyst for continued share price strength.
According to the Analyst Ratings Network, MIC has a consensus buy rating with a price target of $86.40. Four analysts have a buy rating and one analyst has a hold rating. Zacks recently upgraded MIC from a strong sell rating to hold, while RBC Capital and Oppenheimer both have outperform ratings and price targets of $94 and $90, respectively.
MIC missed analyst expectations in the company's latest quarterly results, delivering first-quarter earnings per share of -$1.22 instead of the expected $0.66. Revenue also came in below expectation at $398.5 million (missing by $43.99 million), though revenue increased 44.3% year-on-year. The earnings miss stems from management performance bonuses being issued in the form of shares. Free cash flow during the first quarter was $1.68 per share versus $1.15 in the prior comparable period.
MIC targets a dividend payout ratio of 80-85% and if cash flow projections hold up, further dividend increases can be expected. The dividend growth prospect, along with MIC's attractive current yield, are the main reasons why I'm prepared to accept the somewhat riskier profile.
What do you think of MIC?
Infrastructure is probably a good place to put your money toward these days. I have been looking into a couple of names that are associated with global infrastructure...but they seem pretty overvalued. I hadnt heard of MIC before - thanks for bringing this to my attention.
ReplyDeleteBest wishes
R2R
You're welcome, R2R. MIC only recently popped into my radar when it raised its dividend to $1.07 and so became a Dividend Challenger. Except for stocks in my portfolio, my watch list only contains stocks with a streak of 5 years of dividend increases.
DeleteTake care!
FerdiS
This is an excellent buy. MIC was towards the top of my most recent CCC screen. I had to decide between MIC and TROW and I picked TROW for now. I will be adding MIC soon though. Thanks for the write up.
ReplyDeleteKen
Thanks, Ken -- its good to hear that someone else picked up on MIC's attractive elements. I bought TROW earlier this year, so that's a good one, too!
DeleteCheers
FerdiS
Nice buy Ferdi. I think you will see others buy this stock soon as well, now that it is a challenger.
ReplyDeleteThanks, Dividend Dreams -- I pointed out some of the risks with MIC, but I believe it is worth taking some of those for the chance of earning a great yield and have some excellent dividend growth prospects.
DeleteInteresting purchase DivGro. Never heard of the company and the FastGraph chart seems strange so I would need to do a lot of further DD myself. However, I am always on the lookout for a high-yielder with high growth. My portfolio only consists of 15 companies at this time and although all companies carry some risk, I don't consider any of mine very risky. There are also some more established less risky-- high yielders near my strike points. HCP (Champ) is already there, XOM & CVX (Champs) are there, T is close, SO is close, PG is close, etc. At the beginning of the year I set a goal of expanding my portfolio by 5 names but have only been able to add two due to valuations. I am content just loading up on who is discounted for now. Always enjoy the blog.
ReplyDeletePlease do your due diligence and let me know what you find I'm not a FastGraph subscriber, so I can't see what you mean by "strange". MIC certainly is riskier than many of my other DivGro holdings. Personally, I like to mix things up a little bit. With 45 holdings, one holding represents between 2% and 4% of my portfolio (some are doubled-up). I like to hear about other dividend growth investor's strategies. Yours seem very sound. Adding only when valuations are in order...
DeleteI think that was a great buy. 5% of dividend yield at less than 6 P/E is amazing. I will keep MIC in my watchlist.
ReplyDeleteThanks for the analysis.
BeSmartRich
Thanks, BeSmartRich -- a somewhat riskier one but I'll enjoy the ride if it goes like it has done in the past 5 years...
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