In the Warren Buffett biography The Snowball a story is recounted about Buffett's boyhood dream of setting up a toll road near his home and being able to charge every car that passed along it a toll. There's no doubt that even as a kid, Buffett was on to something!
His love of a monopoly asset with a toll attached hasn't diminished with age, even recently Buffett is quoted as saying:
In an inflationary world, a toll bridge would be a great thing to own because you've laid out the capital costs. You built it in old dollars, and you don't have to keep replacing it.
It's not hard to understand why the business model of monopoly assets and tolls are so appealing and luckily for investors there are a number of businesses on the ASX which have monopoly-like attributes and the ability to earn toll-like revenues.
Transurban Group (ASX: TCL) and Macquarie Atlas Roads Limited (ASX: MQA) are your classic toll business with road assets, however, there is another business which is arguably even more appealing…
Sydney Airport Holdings Ltd (ASX: SYD) owns and operates the major gateway into and out of Australia and every plane which lands or take-off from its runways must pay a fee (or toll). The company has an entrenched market-leading position that is close to impossible to shake and the outlook for the business remains positive.
Recent pricing negotiations will see passenger charges increase by 3.8% per annum from financial year (FY) 2017. This would appear to be a good outcome for Sydney Airport as the increase is higher than the inflation rate.
With consensus estimates for a distribution to shareholders in FY 2016 of 26.5 cents per share, the stock is trading on an implied unfranked yield of 4.9% based on a share price of $5.36.
With news just in that Greece has voted 'no' to austerity, there is bound to be some risk-off portfolio moves around the globe this week. When it comes to defensive assets, Sydney Airport's dividend looks not only maintainable but also set to grow and with a first class monopoly asset, this stock looks like a sensible place to stash some cash in turbulent times.
