How does a nearly 7% yield sound? What if it’s on a dividend expected to grow 12-14% this year, a pace the company has sustained for almost a decade? How about if that payout accounted for just 72% of the free cash flow generated in the most recent quarter, for a 1.39x coverage ratio?

Interested yet? What if we threw in net operating losses carryforwards that will ensure the company pays no income tax for three more years, making its dividend payments during that time a tax-deferred return of capital? What if it didn’t need to issue equity or bonds any time soon to finance its relatively modest growth investments? And had no direct commodity exposure and a fair bit of internal diversification? And reported distributions on form 1099, making its shares suitable for tax-advantaged retirement accounts?

If all this sounds too good to be true rest assured it’s very much the real tale of the tape for Macquarie Infrastructure (NYSE: MIC), the U.S. affiliate of the Australian finance giant Macquarie Group (ASX: MQG). Macquarie Infrastructure derives  the bulk of its cash flow from two logistics businesses.

Source: Macquarie Infrastructure presentation

Just under half the total comes from a dozen of refined fuel and chemicals terminals. International-Matex Tank Terminals, as that subsidiary is known, relies heavily on its four Lower Mississippi terminals in Louisiana and on its storage facility in Bayonne, New Jersey, the largest and most accessible refined products terminal in New York Harbor.

Roughly a third of MIC’s bottom line comes from its business jet fueling and servicing operations under the Atlantic Aviation banner. Atlantic’s 68 fixed base operations (FBO) locations constitute the second-largest U.S. network of general aviation service hubs.

Source: Atlantic Aviation

Macquarie also owns controlling interests in six solar and two wind farms, as well as a gas-fired power plant next to its fuel tanks in Bayonne that provides peaking power to New York City via an underwater cable. A regulated propane and gas distribution utility in Hawaii completes the current business lineup.

What ties these businesses together for Macquarie are their high barriers to competition and the commensurately rich returns on capital fueling MIC’s growth. So while the $720 million acquisition of the BEC peaking plant a year ago has yet to pay off meaningfully, management is already planning an expansion of its generating capacity to take advantage of NYC’s limited power supply options and aging transmission infrastructure in the future.

On the other hand. MIC recently passed on the chance to add several attractive FBO locations simply because the asking price was too steep. “It would have been growth for growth’s sake,” explained the CEO on the last conference call. “It’s better to do nothing than to do something just to get something done. You create value in part by not destroying value.”

His stance is backed by MIC’s strong record of rising dividends and declining leverage on businesses it has owned for many years with the exception of power generation.

Source: Macquarie Infrastructure presentation

Debt/EBITDA is at 4.3x, made more manageable by the fact that, after dividend payments, MIC is currently retaining well over half of its annual $250 million target for growth investments.

The recent quarter was a noisy one as a record warm winter sapped the peaking plant’s profits, while the timing of capital spending and tax issues also threw off the year-over-year comparisons. It certainly didn’t help that the share count increased nearly 10% as a result of the peaking plant purchase and share issuance to cover the sponsor’s management fee.  

Macquarie Group gets a base management fee based on Macquarie Infrastructure’s market capitalization, amounting to roughly 11% of free cash flow in the most recent quarter. It has also over the past two years landed more than $400 million in separate performance fees as MIC’s share price outperformed a benchmark utilities index.

But over the last year that trend unwound with a vengeance, leaving MIC shares down 18%. So even though the stock has nearly tripled in price over the last five years, the sponsor won’t collect any more performance fees until MIC’s recent underperformance is reversed.

Timing issues aside, the underlying cash flow per share continues to grow at a 10% annual rate even after accounting for the recent dilution. It’s benefiting from strong products storage demand at IMTT and Atlantic Aviation’s rising jet fuel margins as well as growth in renewable power receipts.

While there are plenty of risks to this story, notably a recession that could depress business travel and demand for fuel storage, that remains a distant threat at the moment.

And such risks are more than offset by the strong cash flow generation and the likelihood of materially improved performance by an expanded peaking plant over time. We’re adding MIC to our Growth Portfolio; buy below $80.