The nosedive in the share price of Sydney Airport Holdings Pty Ltd (ASX: SYD) may not be over as the airport operator has become the latest to be added to our country's regulatory hit-list.
It's time to bail out of the stock, according to Credit Suisse who has downgraded the stock to "underperform" from "neutral". That call contributed to the stock's 3.3% plunge yesterday to $7.05 and it will have to fall more before it will attract the attention of bargain hunters.
The Productivity Commission has launched a 12-month inquest on the economic regulation at Australian airports and it looks ready to remove the light-touch approach regulators have had on these monopolies.
The airline industry peak body is pushing for change that could lead to lower aeronautical charges at Sydney Airport ahead of the expiry of an agreement between our country's largest airport and international carriers in mid-2020.
The regulatory uncertainty clouding over Sydney Airport comes at a time when global bond yields are trending higher. This is a drag on the value of the stock, which is regarded as a bond proxy. When yields rise, the price drops (and vice versa).
The attractiveness of Sydney Airport's dividend yield and growth is under threat.
"Dividend growth for the next five years (CSe 6% CAGR) is likely to be lower than growth in the past five years (a 10.4% CAGR) due to cash taxes becoming payable and higher capex," said the broker, which has a $6.75 price target on the stock.
"We expect management to smooth the dividend growth to avoid any decline post 2021. We cut dividend estimates by 5% and 3% in 2019 and 2020."
Sydney Airport has been a favourite among income-seeking investors for its dependable dividend payouts and its exposure to the Chinese tourism boom. These tailwinds won't be enough to keep the stock in investors' good books unless the market loses its appetite for risk in a big way.
Sydney Airport isn't the only stock facing regulatory pressure. Fellow infrastructure owner Transurban Group (ASX: TCL) is under scrutiny by a Queensland parliamentary enquiry as allegations of fee gouging are being aired in the media.
Our nations largest financial planning group AMP Limited (ASX: AMP) and our biggest banks including Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) are also being dragged over hot coals by the Banking Royal Commission.
It just doesn't pay to be big in this climate.
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