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The bull and bear case for the Sydney Airport Holdings Ltd share price

There are positive and negative reasons which could impact the Sydney Airport Holdings Ltd (ASX: SYD) share price.

Infrastructure assets are some of the best examples of a monopoly in an economy. Sydney Airport Holdings is one of the few infrastructure businesses directly listed on the ASX.

This company is the operator of Sydney’s Kingston Airport and it has a market capitalisation of $13.8 billion.

Below is why I think the Sydney Airport Holdings share price could rise or fall from here:

Bull case

There is a large boom of tourists to Australia’s shores, most of whom must fly to arrive into Australia. Sydney is Australia’s largest city and receives the most tourists, so it’s no surprise that Sydney Airport is rapidly receiving more international passengers.

In its monthly report for January 2017 Sydney Airport disclosed that the overall number of international passengers increased by 9.7% compared to January 2016.

The strength of the passenger traffic allowed Sydney Airport Holdings to increase the December 2016 dividend by 23%. If the tourism tailwind continues I expect the dividend could continue to grow strongly.

The bear case

Interest rate changes can affect the value of defensive assets such as infrastructure. The decreasing interest rate over recent years has boosted Sydney Airport’s share price, but I think an increasing rate would hurt the share price.

The US Federal Reserve has publicly acknowledged that it will increase the interest rate over the next few years. This will likely damage the share price of Sydney Airport and other infrastructure stocks.

Sydney Airport Holdings has first rights to the second airport that will be constructed at Badgery’s Creek. It hasn’t yet agreed to the deal put forward by the government, but it could be an expensive and time consuming process.

Foolish takeaway

In my opinion, Sydney Airport is one of the best assets in Australia. However, the medium-term future of the share price is not guaranteed to be rosy. It’s currently trading at 33x FY17’s estimated earnings, with an unfranked dividend yield of 5.08%.

I would be inclined to wait a few months before buying, a discount may come along that’s better than the current price. Our number one dividend pick for 2017 could be a much better buy at these prices.

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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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