4 reasons to buy Sydney Airport Holdings Ltd

If you’ve got some spare money you want to invest then don’t look past Sydney Airport Holdings Ltd (ASX: SYD). The gateway to Australia is a money-spinning machine and blue-chip addition to any smart investor’s portfolio. Here’s why.

1) Dividends. It pays one of the highest yields available among the blue-chip stocks on the ASX. Selling for $4.37 the company yields 5.37% based on a 2014 forecast payout of 23.5 cents per share. That number is forecast to steadily increase to 27 cents per share by 2016, placing it on a forward yield of 6.18% if bought today. There’s not much better an income oriented investor can do than that.

2) Competitive advantages. Sydney airport has no serious competitors for now and has first right of refusal on building any proposed new airport at Badgerys Creek. This monopolistic position gives it pricing power to charge almost what it wants for key revenue earners like car parking. Rent payable by the around 200 retailers spread out over three terminals is also likely to increase steadily as there’s no danger of the retailers customers deciding to go online or shop elsewhere.

3) Passenger growth. Sydney is within air range of more than half of the world’s population, including large Chinese and wider Asian markets likely to see increased demand from a growing middle class. Domestic air travel is also likely to steadily increase as Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH) are forced to offer competitive fares to domestic travellers.

4) Rock solid future. The airport is irreplaceable and will benefit as new technologies both in the sky and on the ground serve to increase its profit-making potential. From next-generation airplanes like the Boeing Dreamliner to more automated arrivals procedures, every future change contributes to a growing bottom line.

An alternative with similar advantages is Auckland International Airport Ltd  (ASX: AIA). It has ownership interests in Cairns and Queenstown airports, two destinations sure to benefit from a long-term growth in tourism. Any holding in Sydney Airport should be a small part of a balanced portfolio as risks remain around economic downturns or an act of terror impacting the global travel industry.

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Motley Fool contributor Tom Richardson owns shares in Sydney Airport. You can find him on Twitter @tommyr345

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