Long-term investors looking for stable, growing stocks may have a good opportunity in Transurban Group (ASX: TCL). The toll road developer, operator and owner ticks the box for infrastructure related income that can stretch out over decades. As traffic rises, the revenue potential grows.
I have four compelling reasons why investors could benefit from having a company with a long-term horizon of growing earnings.
1) Good track record for distribution increases
Since 2009, distributions per security have risen annually. Dividend growth is important for steady portfolio income over the years, putting your initial investment money to work to earn you more.
Company FY2014 full year distribution guidance is 35 cents per security, up almost 13% from FY2013. Currently the stock offers a 4.4% dividend yield partially franked.
2) Growth in toll road portfolio
Already having five toll roads in Sydney such as the M2, M5, M7 and the Lane Cover tunnel, the newest addition – The Cross City Tunnel – almost creates a ring around Sydney.
The company, along with Lend Lease Group (ASX: LLC), has been named as the preferred contractor for the 9km NorthConnex link to the Pacific Motorway. If successful, this can add more revenue and connect its Sydney toll road system to a major interstate motorway.
3) Toll road footprint extends to QLD
At the other end of the Pacific Motorway is Brisbane, where now Transurban will have control of five of the six toll roads there. It won the bidding for the Queensland Motorway Ltd, which extends its business network into Brisbane for the first time. It may also be able to acquire the sixth toll road, the Airport Link, to complete the set after this move.
In addition to the increased revenues, buying this road portfolio all at one time gives its business strong barriers to entry for competitors and locks in its road leadership in the area.
4) Melbourne CityLink tollway upgrade
Melbourne is also a growing road portfolio. Transurban will widen the CityLink and Tullamarine Freeway, which is expected to increase traffic flow by about 30%. The company makes money by doing the development, then benefits from improved potential toll revenue in the future.
Including stocks like Transurban in a portfolio can help make long-term returns more stable. Its extensive road networks could increase as populations rise and cities expand outward, so there is growth potential that investors can tap into now.
