The yield on a 10-year Treasury bond is hovering just below 3%. This means investors earn less than 3% for locking up their money in this security for a decade. Shorter-term rates are even stingier — a three-year Treasury yields only 0.70%, while a six-month Treasury yields about 0.08%, close to nothing.

This low interest rate environment has caused income-minded investors to stretch for yield by acquiring riskier securities, including high-yield bonds that can have high default rates and emerging markets, where inflation can eat away at coupon yields. In today’s market, there is a better way to get safer income. At the Morningstar Investment Conference held June 8-10, legendary bond investor Bill Gross, who co-founded Pacific Investment Management (PIMCO), recommended that investors look at dividend-paying blue-chip stocks over Treasuries.
 
Right now it’s pretty easy to find dividend yields of around 3% with blue-chip stocks. General Electric (NYSE: GE) yields 3.3%, while Kraft (NYSE: KFT) yields 3.4%. These are decent absolute yields and should grow along with underlying profits at these firms over time. Within a decade, these yields will likely double from your original cost basis.

But every once and a while, a company that has the ability to double its dividend very quickly comes along. A company I recently uncovered doesn’t yet qualify as a blue-chip stock, but the assets it owns are in a solid, predictable blue-chip-like industry: infrastructure. Furthermore, a unique development could allow management the opportunity to possibly double its dividend payment in the near future.

Australian investment banking giant Macquarie was a pioneer in bringing infrastructure investing to the masses in the early 1990s. It started funds to pool investor money and buy toll roads, energy distribution assets and bridges from government entities and run then on the behalf of federal and local municipalities. One such entity was Macquarie Infrastructure Co. (NYSE: MIC), which currently owns and operates four infrastructure businesses in the United States.

Macquarie Infrastructure Co. owns 100% of two of these four businesses, including a gas utility in Hawaii and an airport services company that focuses on providing fuel-related services to private jet terminals throughout the country. It also owns 50.01% of a Chigaco-based energy facility that provides cooling services to four high-rise buildings.

The last business it co-owns is a 50% stake in a gas production and distribution facility in New Jersey. A family trust owns the other 50%. Currently, the family owners are trying to keep the gas business from paying additional distributions to owners, which Macquarie feels the business is able to pay and should start paying out. If this happens, then it will pass these additional payments to Macquarie shareholders. This is where the real potential for dividend increases lies.

From an investment standpoint, infrastructure is a very appealing asset class. The assets that are built constitute near monopolies. This solid positioning lends itself to stable, predictable cash flow. Macquarie’s Hawaiian utility operation definitely qualifies as a natural monopoly, as do the cooling operations in Chicago. Both would be extremely difficult, if not impossible, to duplicate. The gas distribution and aviation assets qualify as near monopolies and serve important functions that would also be very difficult for rivals to compete against.

Macquarie’s cash flow, especially in the economically-sensitive private jet operations, has improved enough from the recession for the company to recently reinstate its dividend. It announced the reinitiation of its dividend payment along with first quarter earnings on May 4 and an introductory quarterly payment of $0.20 per share. This works out to an annualized $0.80 per share for a current dividend yield of 3.2%.

Returning to the dispute with the co-investors in the gas facility, a recent financial filing stated Macquarie believes the partner’s refusal to allow for additional distributions violates the shareholder agreement. I was able to recently sit down with Macquarie’s CEO and head of investor relations, and their estimate was that the dividend payment could nearly double once the dispute with the family trust members is resolved.

Action to Take -> Macquarie Infrastructure Co.’s investment appeal lies in its potential to nearly double its dividend. I anticipate the increased dividend could happen within the next 12-18 months and could eventually allow for an annual payout of $1.50 per share, or a dividend yield of about 6% at current prices. Management also sees the ability to grow the dividend even more over time as it grows the existing four businesses and pays down debt.

If and once a dividend increase is announced, then the stock price could move up sharply as investors rush to take advantage of the higher quarterly income. This would push the yield back down, but it offers a chance for those that get in early to see further upside. At a free cash flow multiple of less than 10, the stock’s valuation is also compelling and leaves room for ample upside, even without the anticipated dividend increase.
 
The ancillary benefit of investing in Macquarie Infrastructure is the stable and irreplaceable nature of its assets. In Macquarie’s own words, its four businesses are providers of basic, everyday services upon which a modern community depends and that it owns long-lived, high value physical assets whose cash flows are highly visible and should be stable going forward.