The share price of electricity distributor Spark Infrastructure Group (ASX: SKI) fell on Monday, lagging the positive move on the broader market.
At around $1.88 after this morning's 1% fall, Spark shares are worth 13% less today than they were this time last year. You should note, however, that Spark mitigated this by paying its shareholders a dividend yield of more than 5% last year.
Spark owns 49% interests in the South Australia and Victoria power networks and controls around 12% of listed peer DUET Group (ASX: DUE).
The group has also just bought 15.01% of TransGrid, the electricity transmission business newly privatised by the NSW government.
Why did this happen to Spark Infrastructure Group shares?
This morning, Spark Infrastructure Group reported a mixed bag of results for the year ending 31 December 2015. Spark's underlying profit before loan note interest and tax fell by 3.4% to $263 million.
Spark blamed the slide on a lower share of profits from its SA Power Networks business. The South Australian electricity distributor's revenues and earnings are highly regulated. Investors may give Spark a pass on this point, as an October 2015 regulatory change should let Spark raise tariffs and rake in significantly more revenue from South Australia.
Perhaps investors were looking for healthier guidance on dividends. Spark reconfirmed its previous distribution guidance of at least 12.5 cents per share (cps) in 2016, at least 13 cps in 2017 and at least 13.5 cps in 2018, subject to business conditions.
Most companies' shares would probably rally if their management provided such clear guidance for dividend growth. But in the highly regulated world of utilities investment, dividends are an even more important part of total returns than they are for Aussie private investors.
Some traders may have expected Spark's prospects for cash flow growth to translate into faster dividend hikes. With no positive surprise on dividends today, those investors would have sold their Spark shares.
What's next for Spark Infrastructure Group?
Spark sees potential for a 'significant increase' in operating cash flow depending on how regulatory rulings fall. Investors might look forward to that river of cash making its way into their pockets, as the firm intends to review its dividend policy in the next four months.
Spark is diversifying its sources of cash flow and investors could enjoy stronger profits as the firm boosts both operational efficiency and capacity utilisation. With the stock down around 8% since the start of February, this could prove an interesting entry point for an investment in Spark Infrastructure Group.
