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A new type of special situation, Invest in companies before they significantly increase their dividend



February 14, 2011 – Comments (3) | RELATED TICKERS: MIC , BIP


I am constantly reading anything that I can about investing in "special situations."  I recently came across a great quoted on one variety of special situation that comes from many people's favorite value investor, Warren Buffett:

The buying opportunity that Warren exploits is this: after the company announces that it is going to convert into either a royalty trust or a master limited partnership, which means that its future dividend payout will increase after the conversion, the stock market won't recognize the increase until the conversion is completed and the dividend is actually increased and paid out. This creates a short period of time, between the announced reorganization and the actual date of the conversion, in which the company's shares are undervalued in relation to their future increase in value, due to the increase in the dividend payout that occurs after the conversion.

Why does this window of market inefficiency exist? These companies, because of their small market cap, are usually not well followed by Wall Street or the general public. Also, investors have a preference for valuing an interest-bearing security on the basis of what it is paying today, not what it might be paying tomorrow.

The popular members-only investment idea website, SumZero, recently published a write-up on a company that fits this description in the "free" section of its site for the unwashed masses of non-members like myself.

MIC ($21/shr) >> Big Upside, Limited Downside, and a Near-term Catalyst

The company that was discussed is called Macquarie Infrastructure Company (MIC). Macquarie is an infrastructure company that ran into trouble at the height of the Great Recession when one of its subsidiaries was forced to file for bankruptcy and it had to eliminate its dividend. To compare it to a company that Fooldom is familiar with, think of MIC as a mini Brookfield Infrastructure Partners (BIP).

Macquarie owns things like bulk liquid storage tanks, a Hawaiian natural gas utility, a company that services private jets, and a water utility.

To make a long story short, you can read the great write-up for the details, the author not only believes that MIC is undervalued on a sum-of-the-parts basis but that the company's stock price will surge once it reinstates its dividend, which MIC has mentioned will happen some time in early 2011. They peg MIC's fair value at around $36/share, approximately 50% higher than its price today and that the catalysts in place will enable the company to reach that target level within the next six months.

Like many of these ideas, the time to buy this stock was several months ago, it has rallied 75% since late last year, but I'll take a 50% gain on a company that may begin to pay a substantial dividend in the near future. I have not bought MIC in real-life, but I did add it to my CAPS portfolio at $24.05/share.

Is anyone out there familiar with this company? I'd love to hear your thoughts.


3 Comments – Post Your Own

#1) On February 14, 2011 at 2:04 PM, portefeuille (98.93) wrote:

I liked it more around 2 years ago, hehe ...


#36) On March 02, 2009 at 2:14 PM, portefeuille (99.92) wrote: MIC - 0.94 - outperform

#499) On May 13, 2009 at 1:21 PM, portefeuille (99.92) wrote: MIC - end outperform - 2.71 - no new rating

#1162) On May 31, 2010 at 5:14 PM, portefeuille (99.92) wrote: MIC - 14.44 - outperform


(from here)


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#2) On February 14, 2011 at 2:46 PM, checklist34 (98.35) wrote:

i looked at mic many times in 09 and always passed... 


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#3) On February 14, 2011 at 9:11 PM, MegaEurope (< 20) wrote:

Those FCF and EBITDA estimates look aggressive.  As far as I can tell, MIC has never achieved anywhere near that.

I own shares of the Australia Infrastructure Fund which mainly invests in airports (  I think it has more upside/less downside, although no particular catalyst.

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