The under-the-radar ASX dividend stock offering 6-8% yield and stable earnings

Dalrymple Bay Infrastructure (ASX: DBI) is a stock you've probably never heard of, with a tricky name and a confusing business model. But it might also be one of the most stable companies on the ASX.

DBI operates the Dalrymple Bay Terminal (DBT), the world's largest metallurgical coal export facility. They don't own the asset but have a pretty sweet deal:

• The asset is leased from the Queensland Government

• A long-term concession arrangement to operate and maintain the asset through to 2051, with an option to extend this out to 2100

• The asset is also regulated by the Queensland government

This terminal is a vital asset as it acts as a gateway for Queensland coal and the global steel-making supply chain.

The revenue model

Looking at the below half-year 2024 financials, you'll notice something interesting:

• Handling revenue of $188.2 million

• Revenue from capital works performed $33.1 million

• Both of which are offset by 'terminal operator's handling costs' and 'capital work costs'

Source: Dalrymple Bay Infrastructure 2024 half year financial report

The two aren't really "revenue" in the traditional sense. It's just DBI getting reimbursed for its costs – customers cover the handling costs while the Queensland Government covers any associated capital costs.

The company's core revenue is the Terminal Infrastructure Charge (TIC) revenue. Since customers and the government cover most operational costs, DBI's only significant expense above the EBITDA line is general and administrative (G&A) expenses. This lean cost structure allows the company to maintain an EBITDA margin of around 95%.

Stable contracts and pricing power

DBT isn't just a profitable asset, it's a strategic powerhouse.

• It has a monopoly in the region

• It provides coal miners the lowest-cost path from the Bowen Basin to international markets

• The asset can process up to 85 million tonnes per annum (mtpa)

• The asset is fully contracted with 100% take-or-pay contracts

Take-or-pay contracts require the customer to make periodic payments for the processing of contracted volumes, irrespective of whether or not the volumes are fully utilised. This is important given the cyclical and volatile nature of resource markets. Coal exporters may see varying volumes depending on factors including demand, supply, weather and other issues.

DBI has plans to expand DBT's capacity to 99.1mtpa or an additional 14.1mtpa over four phases, at an estimated total cost of $1.4 billion.

DBI operates under a 'lighter-handed' regulatory framework as of July 2021. This new framework has allowed DBI to significantly increase its TIC rates, with prices set to rise in line or above inflation until the end of June 2031.

Since its ASX debut in 2021, the company's dividend yield has averaged 8.1% while its share price has ticked around 40% higher.

A slow-and-steady stair case (Source: Market Index)

What are the risks?

DBI has a long-term exposure to coal, which may be a concern given the global shift towards renewables and less carbon intensive energy sources like gas and nuclear. But here are a few data points to note:

• Approximately 75% of DBT's exports are metallurgical coal

• This type of coal is crucial for steelmaking

• There are no viable alternatives that match met coal in terms of efficiency and cost-effectiveness

• Australian metallurgical coal exports have been in a steady decline in the past couple of years due to extreme weather events and China diversifying its coal sources (e.g. establishment of rail and road links with Mongolia)

• DBI is exploring future opportunities for exporting other critical commodities like hydrogen and ammonia

The Australian Government's commodity forecaster, the Office of the Chief Economist, expects Australian production volumes to rise over the outlook period.

Source: Department of Industry, Science and Resources