Is the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price a buy for income?
Sydney Airport holdings is the company that operates the Kingsford Smith Airport.
It's a pretty good one to consider because it is currently offering a trailing yield of 5.7%, which is double what you can get from a bank savings account these days.
The year-to-date numbers show that total passengers are up 2.7% to the end of November 2018, with international passengers up 4.8% and domestic passengers up by 1.5%.
Any growth is good, but it seems that growth is slowing down compared to the last few years. In November 2018 total passengers only grew by 0.5% and domestic passengers actually fell by 1.1%.
They key markets driving growth are the USA, India and China. Tourism is big business and Australia is a very popular destination. More passengers translates to more retail sales, more car parking fees and more passenger flight revenue. Sydney Airport is adding more routes and capacity all the time.
Are airport earnings that defensive? I'm not sure. Some flights will happen keep on going, like work flights and flights to family. However, it's quite conceivable that holiday flights could be delayed which might be enough to send earnings down somewhat, hopefully it doesn't come to that.
However, with Ecommerce growing at a fast pace it would seem that cargo could be a key driver of growth in the next few years, or indeed the long-term.
Foolish takeaway
Sydney Airport is trading at 35x FY19's estimated earnings with a significant amount of net debt, which is only going to get more expensive in the future with rising interest rates. The Fed increasing rates could also lead to the valuation of Sydney Airport falling.
A high valuation and rising rates make me believe that now isn't the best time to buy Sydney Airport shares. I think there are better priced opportunities out there.
