The unicorn infrastructure stock with "a secure 5% yield that's growing"

“It has a secure 5% yield that’s growing.”

That is how IML’s Michael O'Neill sums up Dalrymple Bay Infrastructure (ASX: DBI). No mess. No fuss. 

In a volatile market marked by sector rotation and AI-driven dispersion, O’Neill says DBI’s appeal lies in its simplicity: long-term take-or-pay contracts, minimal operational risk, and a clear pathway to dividend growth. 

With capital deployment set to lift terminal infrastructure charges and targeted dividend growth of 3–7% per annum, he believes the outlook remains compelling. But as always, there are risks – particularly around capital deployment timing, M&A discipline, and the 2031 contract reset.

He joined me to discuss the company's results, outlook, and his own thesis on the stock - including what could go wrong. 

Dalrymple Bay Infrastructure – FY25 Results

Key Results (vs consensus)

Distributions

Guidance

• TY25/26 distribution guidance: 26.375 cps vs prior guidance of 24.5 cps (+7.7% upgrade)
• Q1-26 and Q2-26 guidance: 6.75 cps each
• Dividend growth target maintained: 3–7% p.a. for the foreseeable future

Do you currently hold DBI and what is your rating?

Rating: BUY

Yes. We have a buy rating on it; it has a secure 5% yield that’s growing. We bought into the two sell-downs from Brookfield last year so we had a couple of opportunities to buy.

It’s a conviction holding in our equity income fund, and we do hold it across most of our funds.

What matters from the results?

It’s a pretty simple business.

They’ve got a secure, growing yield, a long-term lease on the Dalrymple Bay coal terminal, and the beautiful thing is they’re responsible for the maintenance and upkeep, but they don’t have much in the way of operational risk, given they’ve got force majeure protection, 100% take-or-pay coverage, socialisation of customer contracts, and operating costs pass through.

There are only really a few metrics we need to monitor. The key is cash flows and the yield, which is driven by the terminal infrastructure charge.

The things to watch in the calculation of that charge are, firstly, the non-expansionary capital expenditure. They’ve got a pipeline of projects flagged all the way through to 2031.

The second is inflation, and the third is the 10-year bond yield, which remains elevated as part of the return they earn on the non-expansionary capital expenditure that they deploy.

How do those outcomes affect the outlook?

The deployment of this non-expansionary capital should drive the terminal infrastructure charge up, resulting in a higher targeted dividend growth of 3-7% per annum for the foreseeable future. That’s the target management has put out for the medium term.

It won’t necessarily stop in FY28 because they expect similar capital spend on existing committed projects to be undertaken by 2031.

They’ve also done well to manage their balance sheet, so most of their debt is already hedged.

So rising rates, sticky inflation and higher bond yields flow through to higher indexation on their terminal infrastructure charge and a higher return on the capital they spend. Which again underpins good prospects for dividends.

They may also renegotiate a more favourable terminal infrastructure charge when the agreement renews in 2031. Competitor terminal fees are considerably higher than Dalrymple Bay’s agreed pricing today.

What should investors be paying attention to as the story unfolds?

The first one is that there is risk to the upside in looking at the stock from an expansion project.

They’re aiming to expand their existing capacity from 84.2 million tonnes to 99.1 million tonnes, and that would see a significant step up in their dividends.

The second thing is the prospect of M&A. Management is looking out for complementary assets that have minimal operating risk, like the terminal they operate today, at reasonable prices.

If they bought into an asset like they own and generated synergies, that would be great. But if they bought more traditional infrastructure assets without the synergies or overpaid, we see that as value destructive and it would also impede them in growing the dividend.

The last one is just the risk of delays. They’ve got a plan to deploy a lot of non-expansionary capital and if they were delayed in deploying this, it could mean their 3% to 7% per annum dividend growth aspiration wouldn’t be achievable.

What could you be wrong about?

What we could be wrong about is the opportunity to reprice at contract renewal in 2031. Although their pricing is materially lower than competitors’ pricing today, there is one competitor, the North Queensland Export Terminal in Abbot Point, which is under review.

If the concerns around this terminal under Adani ownership mean a more heavy-handed regime, that could potentially mean more pressure coming into the next negotiation, but they’re still in a good position for repricing.