Auckland International Airport Ltd (ASX: AIA) is the largest airport in New Zealand, and so most visitors to New Zealand pass through its asset. There are many reasons to like this business, but here are my top three:
- Monopoly. Over 70% of visitors to New Zealand enter or leave via Auckland Airport, which handles over 18.5 million passengers a year. Thirty international airlines serve Auckland Airport and it is Australasia’s third busiest international airport, after Sydney and Melbourne. As a result, competition is low and barriers to entry are high. Auckland International Airport is also well positioned to benefit from any increases in tourism and travelers to New Zealand.
- Sustainable dividends. Auckland Airport has a 3.5% dividend yield which may not be the highest yield you can find, but is sustainable. It has a dividend payout ratio of 73% which allows it to retain some funds for capital expenditure and growth. Compare this with Sydney Airport Holdings Pty Ltd (ASX: SYD) which has a dividend yield of 4.5% and a payout ratio of 216%. Whilst Sydney Airport has a higher dividend yield, it has a much higher payout ratio which means that it needs to borrow to fund new projects or to even maintain its current dividend.
- Profitability. Auckland airport earns decent profit margins when compared to other airports. For example, its margins on earnings before interest and tax (EBIT) have ranged from 70% – 97% over the last 10 years, compared with Sydney Airport which had EBIT margins ranging from 10% to 80% over the same period. Auckland Airport also has a retail, car park and property development business. In addition to owning the airport, it is gradually building a large industrial, commercial, and retail precinct around the airport on land it owns. This provides an additional source of revenue with higher margins for the business.
Overall, in my view Auckland International Airport has a part to play in well considered portfolio but if you are looking for something more revolutionary, check out these 3 revolutionary ASX stocks to watch.
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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.
You can follow Kevin on Twitter @KevinGandiya.
The Motley Fool Australia owns shares of Sydney Airport Holdings Limited. 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.