MENU

Is the Sydney Airport Holdings Ltd share price a buy?

There are few blue chips that have done better than the Sydney Airport Holdings Ltd (ASX: SYD) share price over the past few years. The share price has risen by 109% since December 2012.

After this historic rise it’s worth asking if the current share price is a buy. It’s important to remember that buyers today are starting from zero, it doesn’t matter how much the share price has grown in the past.

So, to buy or not to buy? That is the question.

Buy case

Sydney Airport operates Australia’s biggest and most frequently used airport. Millions upon millions of passengers use the airport every year and that isn’t going to change any time soon.

The future growth of passengers is what makes Sydney Airport attractive. Australia, particularly Sydney, is one of the top destinations that middle class Asians would like to visit.

Sydney Airport is already seeing large growth in arrivals from overseas. In its latest monthly update for October 2017 the number of international passengers grew by 5.8% compared to October 2016.

The business has been a great dividend stock for shareholders that bought it for that reason. In 2017 it grew its dividend by 16% and it currently has an unfranked dividend yield of 4.37%. This would still provide decent income, although the yield isn’t quite as good as before.

Don’t buy case

Infrastructure shares like Sydney Airport have done so well partly because of the declining interest rates. Lower interest rates make ‘income’ stocks like Sydney Airport seem more attractive because of the defensive yield it offers.

Interest rates haven’t moved up in Australia, but the RBA has signalled that the next move will be up. The US interest rates have already moved up. At some point the market may decide Sydney Airport doesn’t deserve to be trading as high of a multiple as it currently is.

In the long-term the planned second Sydney Airport will take passengers and potentially revenue away from Sydney Airport Holdings.

Foolish takeaway

Sydney Airport Holdings is currently trading at 41x FY18’s estimated earnings. As an investor who tries to beat the index, I couldn’t invest at today’s price. I’d rather wait a few months or even a year or two for the market to be less enthusiastic about the share price.

Instead, I'd rather invest in this share which is growing impressively in Asia and has a great dividend yield.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool's dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader, but it's making waves in Asia and already boasts a term-deposit-crushing dividend above 4%. A debt free balance sheet and dominant market position at home and abroad mean this company offers investors income and some real-deal growth potential...

Simply click here to grab your FREE copy of this up-to-the-minute research report on this rising star right now.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

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.