Dear Mr. Berko: I bought 175 shares of Macquarie Infrastructure in late 2017 at $66. The 11 percent yield was so attractive and my broker was so enthusiastic that I didn’t read anything about the company and was happy with that high yield. A couple of months later the company reported lower earnings, cut the dividend from $5.80 to $4 and the stock dropped to $36.
You told me to buy another 175 shares, which I did at $37, giving me an 11.1 percent dividend yield, which was the yield when I first bought Macquarie. What do I do now? How long do I have to wait to get even? Why did the stock fall so much when earnings fell? Now my broker wants me to sell my Macquarie and buy 1,000 shares of Navios Maritime Acquisition yielding 19 percent. Please tell me what to do. -- R.R., Erie, Pa.
Dear R.R.: Certainly! Tell your customer’s man -- that’s what stockbrokers were called when I first entered the business -- to practice skydiving without a parachute. And I recommend he take Navios Maritime (NNA-$6.82) with him.
Macquarie Infrastructure Corp. (MIC-$41.47) is truly a bloody boring company, and reading its report is as much fun as watching water evaporate. But because I’m confident its $4 dividend, now yielding 10 percent, is secure, I’m comfortable telling you MIC is an energy-related services company that might trade around the low $70s within a few years. Frankly, I don’t mind waiting a few years for a capital gain while earning a 10 percent dividend.
MIC’s terribly weak (2.6 percent) Return on Capital hurt its performance in the last two years. However, an expected 4 percent ROC this year, a possible 5 percent ROC in 2020 and perhaps 5.4 percent in 2021 are good reasons to continue owning MIC. There are two other darn good reasons: I believe MIC may raise the dividend this year to $4.10 and to $4.40 in 2020, and there could be a $1.2 billion cash infusion from asset sales added to its bank account.
MIC operates a portfolio of enterprises that provide services to other businesses, government agencies and individuals organized in four divisions: International-Matex Tank Terminals (IMTT), Atlantic Aviation (AA), Contracted Power and MIC Hawaii.
IMTT provides bulk liquid storage handling services for petroleum and other products, such as renewable fuels and chemicals, including vegetable and animal oils, via 19 marine terminals. IMTT also provides environmental emergency response, industrial waste transportation and disposal services. MIC believes IMTT will provide modest improvement in revenues and earnings for 2019.
Atlantic Aviation provides fuel delivery, aircraft de-icing, aircraft parking and hangar rental services for operators of its commercial, military, freight and government aviation clients. Management expects AA to improve its 2019 profit contribution by 8 percent.
MIC Hawaii processes and sells synthetic and renewable gas, distributes liquefied natural gas and petroleum gas to residential, commercial and wholesale customers. Its products are used on the islands for heating, drying, cooking, power generation and in specialty vehicles. Management believes MIC Hawaii's contribution to 2019’s income statement may be flat to slightly positive.
The Contracted Power division is becoming less important. MIC recently sold its 644 megawatt Bayonne Energy facility for $900 million including debt. And MIC is talking to buyers who are interested in purchasing the assets of its seven solar-generating facilities (142 megawatts) and its wind- and gas-fired facilities that produce 203 megawatts. Management recognizes it lacks scale in this business, and the sale should bring $300 million in cash later this year. If so, $1.2 billion of new money will bolster MIC’s balance sheet, giving management more flexibility to fund future growth projects.
MIC is a dry, boring company that’s also an outrageous speculation. However, it’s an admirably outrageous speculation.
(Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.)