Buying Spark Infrastructure Group (ASX: SKI) shares before the company delivers its 25 February earnings report, and holding them until the end of September 2020, will lock in what I think is a reasonably priced infrastructure fund with an approximate distribution yield of 7%.
What does Spark do?
Spark is a $3 billion infrastructure fund investing in regulated Australian electricity networks. It owns companies the Australian Energy Regulator (AER) considers to be among the most efficient in Australia. Spark also provides investors with an avenue to invest in unlisted electrical utilities.
In my opinion, privatised electrical infrastructure gives investors and customers more productive and fiscally more responsible organisations, and all of Spark’s assets have outperformed since privatisation. According to the 2019 AER benchmarking report, some of its assets have consistently been among the most productive service providers in the national electricity market (NEM) across the past 11 years.
Why is Spark a buy today?
Spark Infrastructure’s corporate structure is that of a unit trust, which means it pays distributions and not dividends. The current average 12-month distribution yield is an unfranked 7.1%. This is a stable payment with a compound annual growth rate (CAGR) of 5.5% since 2012.
Historically, Spark has paid distributions in March and September. Those invested in infrastructure will be watching H1 earnings report to see the impact of recent bushfires.
Over the past 5 years, Spark Infrastructure generally enjoys a rise in share price before the ex-dividend date and a slight fall afterwards, from which it recovers quickly. Currently, it is selling at a multiple of around 26 times earnings, which is far lower than its historic levels of greater than 30.
Spark Infrastructure provides investors access to unlisted privatised electrical utilities, and some of its companies are considered the nation’s most efficient. As part of a regulated market, Spark provides a moderate and predictable distribution twice yearly.
Buying Spark before 25 February will beat the price rise prior to the ex-dividend date. It will also lock in distributions at a higher yield against purchase price.
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Returns As of 6th October 2020
Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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