US Edition 
Questor share tip: HICL offers 4.8pc inflation linked dividend
The infrastructure investment fund has a strong track record of inflation linked dividends and that shows little sign of changing, says Questor.
HICL Infrastructure
150.1p-0.5p
Questor says BUY
HICL Infrastructure [LON:HICL], the FTSE 250 investment fund, remains an excellent income option, offering investors a prospective 4.8pc inflation-linked dividend.
Investors can now receive that income more regularly after the company switched to paying quarterly dividends. The investment trust can offer inflation-linked dividend income because revenues to the fund are locked into a variety of multi-year contracts that are backed by the Government.
That means that HICL isn’t exposed to the success of each specific project, as the revenue to the investment fund is guaranteed to be paid even if the management company running the contract is making a loss.
The £1.5bn infrastructure investment trust, set up in 2006, was one of the first of its kind. It was born out of the era of the public private partnerhips (PPP) that encouraged private investment to build public assets. Initially, construction firms build the assets – normally projects such as hospitals and schools – and, when they are completed, they are sold to funds such as HICL, which receive payments for owning the asset.
The maintenance and running of the project is overseen by a specialist in facilities management, so there is little or no risk in terms of the operation of the assets.
At the most recent valuation of the fund in March, HICL said its portfolio of investments was worth £1.5bn, with an average asset life of 22 years and debt agreed for 20.3 years.
On that basis the shares at their current price are trading at a premium of about 22pc to a net asset value of 123.1p per share. However, the company has raised £50m in equity and purchased a number of assets since the March valuation.
Part of the reason the premium exists is because HICL has said it expects to pay a dividend of 7.25p for the year ended March 2015. The dividend has increased by 2.2pc for every year since 2006. That payout currently offers a forecast yield of 4.8pc.
Say what you like about PPP or the dreaded PPI but Questor can’t think of many other places that offer inflation-linked income this chunky.
The shares have raced away this year and are up 13.5pc since we said buy (132.5p, October 22 2013), but that recommendation remains.