Over the last few months the threat of an interest rate rise in the US has seen money moving out of perceived “income” shares. In my opinion this has presented Australian investors with some interesting investment opportunities.
While I do not own the companies I will discuss, it is not because they aren’t great companies, but because they were overpriced in my opinion, until now.
Sydney Airport Holdings Ltd (ASX: SYD)
As the company name suggests Sydney Airport owns and operates Sydney’s domestic and international airports. Sydney Airport derives its revenue from four main sources, aeronautical services (51%), retail (21%), property/car rental (16%) and parking /ground transport (11%).
What I like
- Monopoly position as the owner and operator of the only airport in Sydney serving commercial airlines
- Strong international and domestic demand for air travel
- A falling Australian dollar which is spurring demand from international travelers into Australia
- Rising dividends with the distribution forecast to rise to 31 cents, up 21% on 2015
Since its peak in August, Sydney Airport’s price has fallen around 15%. In my opinion Sydney Airport will make a great buy at or below $6, which with a forecast dividend of 31c will present a 5% yield for income investors.
APA Group (ASX: APA)
APA Group provides the pipeline and storage facilities infrastructure for the transportation of natural gas across mainland Australia.
What I like
- High cost for competitors to enter and compete against APA Group
- Growing demand for natural gas as an energy source
- History of rising dividends, forecast to increase to 43.5 cents over the next 12 months
Since its peak in August, APA Group has fallen over 19%. With a forecast distribution of 43.5 cents the current share price of $8.10 presents a 5.4% dividend yield and is definitely worth considering today.
Transurban Group (ASX: TCL)
Transurban Group is involved in construction, operation, and maintenance of toll roads in Australia and the United States.
What I like
- Domestic and International exposure
- Easy to understand business
- The worldwide move from government to private ownership (user pays)
- Rising dividends with the distribution forecast to rise to 50.5c cents, up 11% on 2015
Since its peak in August, Transurban’s share price has declined 17%. In my opinion Transurban will make a great buy for income investors at or below $10, which with a forecast dividend of 50.5 cents will bring its yield to just over 5%.
BWP Trust (ASX: BWP)
BWP Trust invests in commercial real estate around Australia. If you haven’t heard of BWP Trust I am sure you will be aware of its major tenant Bunnings Hardware.
What I like
- Financially strong and growing tenants
- Reliable contracted increases in rent
- History of rising dividends forecast to rise 3% in the coming year
- Exposure to the real estate market
Since its August highs the share price has fallen over 21%. I believe the news that Bunnings would exit seven locations to take up vacated Masters Stores has been responsible for a large part of the decline. While the loss of a tenant is obviously not great news, in my opinion the market has over reacted. The market appears to have missed the fact that four of the seven sites are under contract for four or more years. In short this means Bunnings is still liable to pay rent for this period in the event that no new tenants can be found.
At a current price close to $3 and a yield of 5.5%, BWP Trust is definitely worth considering as an income investment today.
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Returns As of 6th October 2020
Motley Fool contributor Alan Edmunds 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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