Sydney Airport Holdings Ltd (ASX: SYD), owns and operates the Sydney Airport under lease from the government until the end of the century. The airport is currently the country's busiest and showing good volume growth with limited competition. Investors have been drawn to the company due to its solid revenue growth, strong cashflow, and consistent dividend payouts.
Spare Price Outperformance
SYD's share price is up 20% over the past 12 months and over 15% already in 2014. The share price has been supported by the strong unfranked dividend of around 6%, and the competitive advantage it holds over its competitors.
Competitors include train and bus networks, which provide a similar priced service for individuals, but travel times are much longer. Additionally, Sydney is Australia's business hub, which disadvantages interstate airports. This is unlikely to change any time soon and secures the healthy future of the company.
A New Sydney Airport by 2025
The lack of competition may be set to change in the next 10 years. The NSW government recently announced that a new airport to the west of the city will be built by the mid-2020s. This airport is required to take pressure off Sydney Airport as it is expected to reach capacity by 2030.
SYD has first right of refusal to develop and own the proposed airport, however analysts consider that if it does not take up the offer it will be only be a minor competitor due to its proposed distance from the city (56km) and the belief that it is unlikely the major carriers will split operations between the two sites.
Is it too late to buy?
SYD trades on a price to earnings ratio of around 33 times forward earnings and a dividend yield of 5.5%. This seems expensive, however investors are pricing in some significant growth in passenger volume and consistently strong dividend payouts for the next 10 to 15 years. There are few companies on the ASX that can boast such an impressive dividend and cashlfow outlook over the long term assuming economic activity goes as predicted.
SYD has few genuine threats in the local market, has seen a 50% jump in customer numbers since 2000, has plenty of room for increased customer numbers until around 2030, and derives revenue from not only passengers, but also retail, parking and car lease rental.
