Is the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price a buy for income?
I believe Sydney Airport Holdings, the operator of the important Kingsford Smith Airport, could be an interesting choice for income.
A buy for income
Sydney Airport Holdings has increased its income payment to shareholders each year since 2013. It's currently trading with an income yield of 5.4%. This isn't a huge yield, but it's nearly double what you can get from bank savings account.
Sydney Airport is one of the best ways to profit from the growing number of international passengers coming to Australia. In 2018 international passengers increased by 4.7% to 16.7 million people, helping total passengers grow by 2.5% to 44.4 million people.
Passenger growth from some of the key countries continues. In the month of December 2018 Chinese passengers grew by 4.2%, USA passengers increased by 13.1%, Indian passengers grew by 9.8% and Japanese passengers grew by 10.7%.
Not a buy for income
Sydney Airport is pretty expensive for an income share, it's trading at 38x FY19's estimated earnings. Plus, as an income share it doesn't exactly have a large yield, although it's not bad if you ignore franking credits.
Another problem for me is that passenger growth is slowing. I believe a business is only worth a hefty price if it's also growing at a decent rate. In the month of December 2018 domestic passengers fell 2.6% leading to a total passenger decline of 0.1%. Perhaps this is a short-term, temporary setback but more negative months means it's going backwards.
Over the longer-term a new Sydney airport at Badgerys Creek could lead to competition for flights.
Foolish takeaway
Sydney Airport is a pretty solid business offering a good level of income, but I'm looking for capital growth from my shares too, which I don't think there could be much of that from Sydney Airport over the next couple of years unless strong passenger growth comes quickly.
