Many clichés pass as truisms. “Perception is reality” is one.

Perception can be reality, or it can’t.

I perceive I can fly. I proceed to the observation deck of the nearest skyscraper, scale the retaining fence, step onto the ledge, and lunge forward flapping my arms vigorously.

I perceive I can fly. The reality is that I’ll be dead in five seconds.

Many investors perceive GameStop (NYSE: GME) as different from reality. They perceive it as the next Blockbuster.

GameStop, too, like yours truly attempting to fly, will be dead, or at least bankrupt. The reality of the financial numbers begs to differ. The numbers reveal a company alive and kicking.

GameStop reported third-quarter numbers that beat most analysts’ estimates: Earnings per share posted at $0.54; revenue posted at $1.99 billion. The majority expected less on both accounts. Same-store sales were up for a third consecutive quarter.

Investors perceive that GameStop’s physical video-game business withers on the vine. It’s a mixed bag. The perception both converges with and diverges from reality.

New video-game software sales remain plump and hydrated. The segment — GameStop’s largest — posted an 8.8% year-over-year gain. Value and used video-game software wither, but everyone knows this. The segment recorded another quarterly decline. Sales were down 2.2%.

GameStop’s newer segments show mixed results: Technology sales, which includes reselling Apple (NASDAQ: AAPL) mobility offerings, were down 10.2%. Collectibles sales were up 26.5%.

GameStop’s Outlook

When it’s all aggregated, it’s all OK.

GameStop is all but assured of ending the year deep in the black. Management reiterated full-year guidance for EPS of $3.10 to $3.40 and forecasts full-year comparable-store sales to rise by low- to mid-single digits.

If we take the midpoint of the EPS estimate, $3.25, GameStop shares trade at only 5.7 times 2017 EPS. The earnings, whether they post low or high, easily cover GameStop’s $1.52 per-share annual dividend.

The perception is that GameStop is the next Blockbuster. The reality is very different. The reality is you can buy a cheap stock with a future that offers an 8.3% dividend yield.

The Macquarie Dividend

Macquarie Infrastructure (NYSE: MIC) offers another example of perception diverging from reality. Investors perceive Macquarie dividend — a $5.68 per-share dividend that yields 8.8% — as endangered. I perceive otherwise.

Macquarie owns a respectable portfolio of productive assets: bulk liquid terminals, an airport services business, and power-generation complexes. These businesses continually generate ample cash flow. “Ample” is evinced by continual dividend growth.

The latest Macquarie dividend was paid last month. The latest included a quarterly increase. Nothing new here. Macquarie has increased its dividend 16 consecutive quarters.

How did investors react to the good news of another increase?

Macquarie’s share price dropped 6%. The shares subsequently recovered some, but not all, lost ground.

Investors homed in on earnings, which were down for the quarter. Macquarie reported a 14.8% decrease in net income.

Investors should home in on cash flow instead. Macquarie generates a lot of non-cash expenses that suppress earnings. Cash flow should be the focus because cash flow supports the high-yield dividend.

On the cash-flow front, Macquarie reported an aggregate $144.4 million and $432.4 million of free cash flow in the quarter and year-to-date periods. These are 9.5% and 10.4% respective increases compared with the prior-year periods.

The cash should continue to flow in 2018.

Macquarie will provide full-year 2018 guidance early next year. I expect it to guide for higher cash flow and higher dividend payments. I expect Macquarie to benefit from growth capital deployed in 2017.

The reality is Macquarie’s dividend is safe. The reality is you should consider Macquarie if you’re an income investor in search of high yield and relentless dividend growth.

— Steve Mauzy

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Source: Wyatt Investment Research