The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price could be a buy for its 5.3% dividend yield.
Sydney Airport Holdings is the business that operates Sydney's main airport and it has been growing passenger numbers impressively in recent years. In the latest monthly update for October 2018 it reported that total passengers increased by 3.2% compared to October 2017 and international passengers grew by 6%.
Thanks to its consistently-growing cashflow, Sydney Airport can pay a growing distribution to shareholders. It just announced what its February 2019 payment will be – it's going to pay 19 cents per security, which is a 5.5% increase compared to a year ago.
There are several factors helping passenger growth. Older Australians are retiring and travelling to other parts of Australia & overseas, young Australians are choosing experiences over buying costly houses and international visitors are arriving every year to check out one of the best countries in the world.
Indeed, in the year to date, USA passengers has risen by 9.1%, Indian passengers are up 15.6% and Chinese visitors are up 4.3%.
I have been writing for a long time that Sydney Airport is one of the ASX shares that are most linked to interest rates. Its share price is up nearly 90% over the past five years thanks to underlying growth and falling interest rates. The rising US rates have dampened the valuation growth over the past year.
However, with the US Fed Chair recently saying that the rate may actually be reaching the neutral rate where additional rate rises may stop, it could make Sydney Airport a good yield play again.
It's trading at 37x FY19's estimated earnings. Sydney Airport isn't cheap and I'd rather buy it with a yield of around 6%. Therefore, it could be a decent income buy today, but for total returns it might be better to look elsewhere at the current price.
