Sydney Airport Holdings Ltd’s 5% dividend income

Sydney Airport Holdings Ltd (ASX: SYD) shares are offering a 5% dividend income.

Sydney Airport Holdings is the listed company responsible for the largest Airport in Australia.

It makes money by charging airlines a fee to access the one and only landing strip around Sydney. It also has a growing retail business and charges commuters and tourists for things like car parking and vehicle rental.

As you can imagine, it generates a lot of reliable income from its activities. After all, if airlines can’t land at Sydney Airport where will they go?

The company has a virtual monopoly control over its industry and is uniquely placed to benefit from the expected increase in international tourism.

Earlier this week, in fact, the company reported its 2016 results and revealed that the number of travellers from key markets including China, the United States, India, Korea, Japan and Indonesia expanded by more than 10%.

Dividend income

The Sydney Airport business is obviously very stable and predictable compared to most businesses. That has enabled it to pay a steady dividend income to investors.

Over the past three years, annual dividends have increased substantially from around 23 cents per share to a forecast 33.5 cents in the year ahead — that’s more than 40% growth.

But not only that, the Sydney Airport share price has flown higher, from below $3 in 2012 to over $7.50 in mid-2016.

Concerns ahead?

Since mid-2016, the company’s share price has fallen back as concerns over rising interest rates mount. Also, news of a second airport, in Western Sydney, is spooking investors.

While Sydney Airport has the first right to develop and manage the new airport, the concern for Sydney Airport shareholders is that they may not secure the rights to the new airport on good terms. And if they don’t get the rights then a new competitor will emerge in the next decade or so.

In the short term, it also faces some headaches. Rising interest rates can mean higher interest payments (the company has a big debt pile), potentially lower distributions and more investors selling shares to invest in term deposits.

Should you buy Sydney Airport for its dividend income?

Sydney Airport is a strong business with an excellent asset. However, its shares appear a little expensive for my liking. Further, I would adopt a wait-and-see approach until we find out more about the second airport in May.

We've just released our #1 dividend pick for 2017. And the winner is...

With its shares up 155% in just the last five years, this 'under the radar' consumer favourite is both a hot growth stock AND our expert's #1 dividend pick for 2017. You can discover its name, code and a full analysis by clicking the link below.

Simply click here, enter your email address, and we'll send you a copy of our brand-new FREE report, "The Motley Fool's Top Dividend Stock for 2017."

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.