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Macquarie Infrastructure Corporation Message Board

  • doc_42849 doc_42849 Aug 9, 2007 7:58 AM Flag

    Why are you guys buying a stock that pays out more than they make?

    How can they contunue to pay out more in dividends than they make????? It's like you spending $50K a year when your only earning $30. At some point something has to give. Can someone that owns this company explain to me how they do this and stay in business?

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    • I haven't looked at this board for many weeks now and thought I'd check to see how things are going. Most of the posts are very informative. Back in Aug when I made this post I was concerned about the continuation of the very high dividend. Since that post and immediately after when Fisherick called me a dumbass the stock has dropped 32%. Additionally Nicolaus Upgraded the stock to a buy while it continued to drop.

      It's interesting that after a 32% loss no one has come back to down grade the stock and also Fisherick hasn't had anything new to say. I guess just going with a gut feeling is sometimes the best way to go when you have trouble understanding the inter workings of a company like this. I sure hope this thing turns around for you guys that have been holding. My gut tells me that the dividend might be cut soon. But if that happens the stock might start going back up. I haven't bought yet, but it's getting down to an interesting price. Best of luck and keep the posts coming. It's been a good educations.

    • I keep reading the same comments on these Yahoo message boards on several of the finance-based high yielding stocks, such as MIC and some of the MLPs and REITs and Canadian royalty trusts. Posters keep questioning how these companies can continue to pay out distributions greater than their reported GAAP earnings. The problem usually centers on three things:

      1) GAAP earnings vs. cashflow. GAAP requires the reporting of various non-cash charges that have the effect of reducing reported earnings. Cashflow is the true measure of whether a company has enough money coming in to pay its distributions. Many of these companies are buying physical assets (such as airports, airplanes, ships, pipelines, cemetaries) with definite cashflows. They buy the assets largely with borrowed money (the % varies on asset type). As long as finance costs are cheaper than the operating cashflow and there are no impairments (or defaults on underlying leases) then the company will be okay. Sometimes the companies securitize leased assets to lower their cost of funding. The banks won't finance 100% of the acquisition cost of more assets so these companies periodically have to raise funds through equity sales (or asset sales) in order to grow since they pay out a large proportion of their cash.

      2) Depreciation charges. The accounting rules and tax code allows companies to take charges (thereby reducing taxable income) for the depreciation. Many of these types of physical assets actually increase in value over time (or at least do not depreciate as fast as the depreciation charges taken) due to the scarcity value of the asset or the increased replacement cost. Inflation causes the cost of replacing the asset (labor plus materials) to increase, plus, in the case of assets that are leased, the leases could have inflation escalators that increase the cashflow to the company, thereby increasing the value of the asset.

      3) Derivatives. Many of these companies finance their asset purchases with floating rate bank debt and then enter into interest rate swap agreements to convert the floating liability to a fixed liability. Bank agreements are almost always of the floating kind because of how they match fund their assets. The accounting rules require that the swaps be marked to market each quarter even though the company has not realized a loss or a profit from the changes in swap rates. The mark-to-market could be a charge to earnings (if swap rates go down), but it has no effect on the companies' debt payments (which have been fixed with the swap agreement).

      The common thread among these types of companies is that they are choosing to pay out relatively high proportions of cash flow to their investors instead of retaining the money to reinvest in the business. More of an investors total return is coming from distributions instead of share increases. The companies hope that steady, increasing distributions will lead investors to pay more for that return, leading to increasing share prices.

      • 1 Reply to marklibera
      • Interesting discussion. My only conclusion is that these high div plays are RISKY. Check out the chart on CVP. Even a hint of a div decrease will tank the stock.

        One major thing going for MIC is that management has been raising the div. Usually these high payouts are constant. It's unusual to find one that actually increases. This tells me that, at least for now, management is confident in what they are doing.

        For those new to world of extreme income investing, I can recommend the Alpine fund. I've owned it for a while.

        Good luck, UCS.

    • I for the most part disagree. Most of the country is experiencing declines in housing prices. However, even if you are correct, Wall Street does not view it that way. Lending institutions are unwilling to lend because they disagree with you and are wary about the value of the underlying assets. Thorburg is heavily invested in mortgage backed securities according to their SEC filings and that is why they are paying 18% for funds.

    • So what? It's a 1.40 stock as we speak....they gave themselves away to save the future in holding Thornburg that is paying 18% interest to stay alive.

    • Well, I bought it because it pays out less than it earns on an operating cash flow basis. I assume you are looking at net income insead of cash flow. If I missed something, please let me know.

      • 1 Reply to acfhkmo
      • I haven't looked at this board for months. Happened to take a look today by chance and seen your response to my Oct. note.

        I was looking at net earnings. Positive cash flow does support dividends, but I think in time that's going to be a problem. BTW stock was over $40 in Oct. and down from that.

        Another company that was paying a similar dividend was TMA Thornburg. They are about ready to go under.

        I just don't have a good feeling about a company like this and their dividend payout. If you're looking for a good dividend, check RMR, a REIT's rental fund. Or EXG, closed end buying perferred stock, selling options, etc. They pay over 11% and should be stable at that percent and will sell for around $16 even during slow market like we have now.

    • No worries, mate! Go on believing that Macquarie Group/Bank and MIC are independent and unconnected.

      P.S. MIC's 2006 Annual Report on page 23 states:

      "Our manager, Macquarie Infrastructure Management (USA) Inc., is a wholly owned subsidiary of Macquarie Bank Limited. Our Manager is also a shareholder and owns approximately 6.9% of our shares as of December 31, 2006.

      Under our management services agreement, our manager is responsible for our day to day operations and affairs, and is subject to the oversight and supervision of our board of directors."

      Check the insider transactions by Macquarie Infrastructure Management Inc.

      Macquarie Infrastructure Company Trust and Macquarie Infrastructure Company LLC's 2006 10k states on page 3:

      "We have entered into a management services agreement with our Manager. Our Manager is responsible for our day-to-day operations and affairs and oversees the management teams of our operating businesses. Neither the trust nor the company have or will have any employees. Our Manager has assigned, or seconded, to the company, on a permanent and wholly dedicated basis, two of it employees to assume the offices of chief executive officer and chief financial officer and makes other personnel available as required. The services performed for the company are provided at our Manager�s expense, including the compensation of our seconded personnel.

      Our Manager is a member of the Macquarie Group, which provides specialist investment, advisory, trading and financial services in select markets around the world. The Macquarie Group is headquartered in Sydney, Australia and as of December 31, 2006 employed almost 9400 people in 24 countries.�

      The Manager, i.e., Macquarie Group/Bank�s wholly owned subsidiary, is the entity that stripped our $43 million in �performance fees� last quarter, roughly 200% of MIC�s net income for the quarter. Macquarie Group/Bank�s CEO was paid $A 33 million last year and because of the seconding arrangements there is no visibility of MIC�s [seconded] officer/director/employee compensation. Query: do you think they honor their duty of loyalty to their employer or to MIC�s shareholders?

      Similarly, the first page of MIC�s 2006 Annual Report shows that $60.08 million of MIC�s $49.92 million of net income was from �Gain on [Asset] Sales.��right, without those sales the bottom line would be red! As my previous posts have indicated, these asset sales and purchases appear to be largely among affiliated entities within the Macquarie group. If you thing those transactions are arms-length and for fair market value, you might want to refresh your memory as to one of P.T. Barnum�s more famous quotes.

      You could well be right; MIC may well hit $40, $50. or even $60; but, in my opinion, sooner or later the charade will collapse. If you�re going to play the bigger fool game, don�t hang on too long. I never suggested anyone short anything�MIC�s dividend militates against that �even if it�s being funded by smoke and mirrors. If you really like infrastructure, check out the ETF GII, but DYODD.

      Educate me.

    • why would you NOT want to buy a stock where management has elected that perfomance fees are to be paid in additional shares?

      • 1 Reply to fisherick
      • In response to:

        why would you NOT want to buy a stock where management has elected that perfomance fees are to be paid in additional shares?

        Performance fees totaled $43 million which caused a loss of about $23. That tells me they earned $20 million, which they turned over for performance fees and also turned over another $23 million which caused a loss for the quarter.

        Maybe I'm having trouble doing simiple math but if they are willing to pay out $43 million but only took in $20, then where did the additional $23 million come from? Out of retained earnings? From borrowed money? From the tooth fairy?

    • Read the friggin report, dumbass.

      • 1 Reply to fisherick
      • I bailed after getting cold feet on the affiliate transactions. I never could understand the disproportionate management fee last quarter. Also, Jim Chanos in the Fortune article calls Macquarie Group a Ponzi scheme. S&P's Company Report states:

        "The airport services business consists of two operating companies, Atlantic and AvPorts.
        The company purchased 100% of North America Capital Holding Company (NACH), the parent company of
        the Atlantic business, from Macquarie Investment Holdings Inc., a wholly owned indirect subsidiary of
        Macquarie Bank Limited. Prior to its acquisition of NACH, it acquired 100% of the shares of Executive Air
        Support Inc. (EAS), the parent company of the Atlantic business. The company also acquired the AvPorts
        business from Macquarie Specialized Asset Management Limited, as Trustee for and on behalf of Macquarie
        Global Infrastructure Funds A and C, and Macquarie Specialised Asset Management 2 Limited, as
        Trustee for and on behalf of Macquarie Global Infrastructure Funds B and D."

        If I understand, Chanos' conceren correctly, he's troubled by how much income comes from re-evaluation of assets--from

        "STEPHEN LONG: Macquarie's funds pay their investors out of borrowed money and that's one of Jim Chanos' key concerns.

        They revalue the assets they own then borrow money against the re-valuations to fund the payments to investors, a strategy that could founder when, inevitably, the period of cheap credit and asset price inflation comes to an end.

        JIM CHANOS: And this is the real crux of the problem on an ongoing basis. If you look at the financial accounts of the trusts you'll see that in almost all the cases the companies are using Australian re-valuation accounting which is legal under GAAP (Generally Agreed Accounting Principles) in your country to write up the value of the assets annually and put that through operating income and into equity."

        DYODD and remember: Ponzi Schemes pay big returns to those in on the front end, but be sure to get out before the worm turns.

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