Miller/Howard started dividend-focused investing with the launch of the Miller/Howard Infrastructure strategy in 1991 following our landmark study comparing utilities to bonds. This study examined a 45-year period from 1945 to 1990 and highlighted the superior risk adjusted returns that could be found by investing in equities that provide quality income and income growth.
When I'm asked, "What does Miller/Howard do?" I simply say that our primary focus for over a quarter of a century has been to deliver high and growing stream of income from equities. We believe getting paid in regular, real-time intervals in the form of cash dividends and using the power of compounding in a more purposeful way are good things to focus on when investing in the stock market. Put simply, we like to see our clients get a raise every year, regardless of the normal ups and downs in the stock market.
The Miller/Howard Infrastructure strategy is a diversified portfolio of US listed global infrastructure assets and enablers. We view the portfolio in five investment buckets: utilities, including water, gas, and electric; global communications; energy infrastructure; transportation and logistics; and, finally, enablers, which are the companies that help facilitate and/or build out infrastructure.
The portfolio is US centric, with a minimum of 80% of the assets in what we call foundational infrastructure, which are the assets that society simply can't live without. The strategy also has the flexibility to invest up to 20% in enablers. The portfolio attributes include a lower correlation to the broad equity markets, higher yield, and inflation protection through rising dividends.
The infrastructure space is very fertile soil for healthy and growing dividends. We think an increase in clients' overall asset allocation to defensive essential service companies like these infrastructure companies is a good thing. These are durable business models, often monopolies or monopolistic in nature. They're physical, tangible assets that have very visible earnings power and cash flows. These long duration assets are defensive in nature and provide a qualitative risk metric in a world of uncertainty and challenges. These attributes drive the fact that they are often referred to as SWAN, or sleep well at night stocks.
At its core, infrastructure can be defined as the essential services and foundational assets in society that make up the backbone of the economy. When you think about your home, it's hard to imagine not having electricity, heat in the winter, or air conditioning to stay cool in the summer. When you think about going from place to place, the transportation infrastructure is the backbone, whether it be the highway system or bridges, supported by all of the energy infrastructure that is required just to fill up your gas tank.
Finally, infrastructure includes logistics, which are the hands and feet of e-commerce. Everybody talks about the impact of online purchasing on brick-and-mortar retail companies, but without the transportation and logistics network, e-commerce wouldn't be a possibility. These are some of the categories and areas that we focus on in the Miller/Howard Infrastructure portfolio.