Companies raising their dividend through the current coronavirus crisis are rare. But HICL Infrastructure (LSE: HICL) has done just that and announced the fact in today’s full-year results report.
I’ll come clean right from the start. I’m bullish about the infrastructure sector and believe it has a tailwind because of the government’s response to general economic events. Rather than austerity, my guess is policy-makers will aim to spend the UK to prosperity this time.
5%+ dividend
And that potentially means plenty of public money being channelled into infrastructure spending. However, as well as the UK, HICL operates in countries such as Australia, Canada, France, Ireland and the Netherlands.
Meanwhile, Infrastructure investment and operating companies are displaying what looks like good value, in many cases. HICL, for example, with its share price near 162p, has a dividend yield a little higher than 5%. And the price-to-book ratio stands close to one. Indeed, it’s hard to make a case for the stock being expensive when looking at those indicators.
The company reckons its target dividend of 8.25p per share for the trading year to 31 March “is fully cash covered.” And that’s an uplift of almost 2.5% compared to last year’s shareholder payment. However, there won’t be an increase next year. The firm said it’s guiding a flat dividend next year because of “the impact of Covid-19.”
Around 70% of the business is involved in public-private partnerships (PPP), 20% in demand-based assets, such as toll roads, and 8% in regulated assets, such as utility providers. The company’s guiding star is to invest in “essential and public core infrastructure, with a strong social purpose.”
Profits down in the short term
The firm reported today that several external factors offset “solid” underlying portfolio performance. There was an “exceptional impact” of Covid-19 on HICL’s demand-based assets, and “changes to macro-economic assumptions” flowing from that.
Indeed, profits are well down. And the net asset value declined by around 3.3%. However, the directors reckon a return on net assets of 1.9% in the year demonstrates the underlying strength of the company’s diversified portfolio. But I admit it doesn’t look so sweet when you compare it to last year’s return of almost 11%.
But I see HICL as a survivor and a potential thriver in the years ahead. The firm occupies an essential place in some of the nation’s infrastructure assets. And the directors said the companies in its portfolio are “responding well” to challenges brought on by Covid-19. They’re working hard to support the public sector to keep essential infrastructure running smoothly. In one example, HICL is responsible for maintaining 25 hospital facilities with over 9,000 beds.
Opportunities ahead
Looking ahead, HICL aims to find new and sustainable investment opportunities in essential infrastructure, with “good quality, predictable cash flows and a protected market position.” And there’s an “attractive” pipeline of accretive investment opportunities. The directors have pledged to act selectively on those opportunities and will also evaluate strategic disposals.
I think the company stands up well as a steady, dividend-led investment opportunity. And that 5% yield looks tempting to me right now.
