Driving up income ...from Denver toll to the Home Office
HICL Infrastructure Company is the largest infrastructure firm on the stock market. It was also the first of its kind to float, back in 2006, since when it has established a reputation for steady growth and generous dividends.
At 173¾p, the shares have performed well since their 100p flotation price, but they still represent good, long-term value for investors in search of income.
Infrastructure companies are all about buying assets that will deliver predictable returns over many years. And with more than a decade’s experience under its belt, HICL knows how to find these assets better than most.
The company has 115 investments in its portfolio, ranging from the Home Office headquarters in London to a toll road in Denver in the US. There are libraries in the North of England, schools throughout the UK, hospitals, motorways, fire stations, police stations and even a Mounties office in Canada.
The assets differ widely, but they all provide essential services, they all support the communities in which they operate and most are in the public sector.
The majority are in the UK too, with a smattering of investments in the US and Europe – all regions where there is a real need for infrastructure and governments have pledged to spend more on it. This means the business is better able than most to forecast future income.
HICL’s results are out on Wednesday and it has said it expects to pay out 7.65p per share for the year to March 31. That implies a dividend yield of 4.4 per cent – considerably higher than interest available from savings accounts.
Unusually too, the company has already set out its planned dividends for the year to March 2018 and the following year – 7.85p and 8.05p. The forecasts are both encouraging for income seekers and reflect the management’s confidence in the future.
Earlier this month, HICL spent £269 million buying a 37 per cent stake in Affinity Water, the largest water-only supply firm in Britain. Water firms are all heavily regulated and their income is pegged to inflation. For investors, that makes HICL a good bet against current and future inflationary pressure. When HICL started out, investing in infrastructure was a relatively new phenomenon. Today, there are a number of publicly quoted infrastructure firms, so competition for assets can be fierce and prices can be high.
Fortunately, HICL has an experienced team with a well developed network of contacts, so it aims to find assets before they even go on to the market – the stake in Affinity Water being a case in point.
Midas verdict: In a world of increasing uncertainty, rising inflation and low interest rates, HICL offers plenty of attractions, providing decent income, a smattering of share price growth and the confidence to predict the dividend two years out. Buy. Traded on: Main market Ticker: HICL Contact: hicl.com or 01481 749700