Roads to Nowhere

With the announcement that Macquarie Infrastructure Group (MIG) plans to sell three of its biggest toll roads being symptomatic of investors hunger for higher yield investments, we thought it was about time we took a closer look at infrastructure funds.
Infrastructure funds are viewed as safe investments and for that reason investors who are risk-averse seek out funds that deliver regular income in the form of high-yield dividends. A criticism of MIG has been that both its dividends and stock price have failed to deliver. The chart below contains a list of all Australian infrastructure funds as at December 31, 2005, and compares their dividend yields to date.

It has been widely reported that MIG will sell the Eastern Distributor, the M4 and M5 to a MIG spin-off. One fund will offer higher yields generated by an established base of domestic assets and another will contain MIG’s more speculative portfolio, which includes roads in the US, Europe and the yet-to-be-built M7 in western Sydney.

The spin-off fund would seek to offer dividends that compete with the higher-yield offerings from the likes of Hastings Diversified Utilities and Hastings High Yield Fund. By removing the overseas component of the fund, franking is expected to climb to about 50%. The new fund would also be spared about $15 million in management and performance fees.

At the end of 2005, Macquarie funds made up just less than 50% of listed infrastructure funds on the ASX. With two other funds already occupying the dividend middle ground, the new MIG and its high dividend spin-off will sit comfortably at opposite ends of the spectrum.