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Macquarie Hikes Quarterly Dividend

Zacks Equity Research

Infrastructure service provider Macquarie Infrastructure Company LLC (MIC) recently hiked its quarterly dividend by 4.3% to 91.25 cents per share or $3.65 on an annualized basis. The increased dividend for fourth quarter 2013 is payable in cash on Mar 6, 2014 to shareholders of record on Mar 3.

A steady dividend payout is part of the long-term strategy of Macquarie to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of its most attractive features. Based on the closing price of $58.40 on Feb 19, the increased dividend affirms a healthy yield of 6.25%.

The strategic decision to augment the dividend payout comes on the heels of better-than-expected fourth quarter and full year 2013 results, wherein proportionately combined free cash flow rose 12.2% and 25.4%, respectively. Macquarie defines proportionately combined free cash flow as the sum of the free cash flow and investments in proportion to its equity interest in each holding company costs. It is regarded as one of the key metrics to gauge the performance of the company and an accurate representation of its cash and liquidity position.

The solid quarterly performance is primarily attributable to improvement in operations at the Atlantic Aviation segment of Macquarie, which owns and operates a network of fixed base operations (FBOs) at 63 airports in the U.S. Macquarie also acquired a portfolio of five additional facilities in December last year. The acquisitions are expected to close at the end of the first quarter of 2014.

With the acquisitions, Atlantic Aviation has established its footprint in Florida – the largest general aviation market in the U.S. – with approximately 11.8% of all flight movements based on data compiled by the FAA (Federal Aviation Administration). Consequently, Macquarie has been able to transform itself from virtually a zero presence in Florida to being the second largest FBO operator in the region. In addition to physical exposure, the acquisitions will also increase Atlantic Aviation’s weighted average lease life from 19.0 years at Dec 31, 2012 to 19.6 years at the closing of the transactions.

Macquarie anticipates the growth momentum to continue in 2014 and expects to generate a significant proportionately combined free cash flow to further increase its dividend in the ongoing year.

Macquarie presently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include 3M Co. (MMM), Marubeni Corp. (MARUY) and Hutchison Whampoa Ltd (HUWHY), each of which carry a Zacks Rank #2 (Buy).

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