The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price closed down 0.41% on Wednesday at $7.32. Near its 52-week high, the Sydney Airport share price has risen 8.9% higher since the beginning of 2019 and presents an interesting defensive or income investment case.
The company announced its full-year results on 21st February. The results were largely in line with expectations and here are the highlights:
- Record 44.4 million passengers, up 2.5% on the pcp, with international passengers growing 4.7%
- EBITDA of $1,282.6 million, up 7.2%
- Net operating receipts up 9.4% on pcp
- 2018 distribution of 37.5 cents per share, growth of 8.7%
The company is seeing strong growth from a diverse range of travellers. The fastest growing nationalities are from Vietnam, India and USA with 17.5%, 14% and 9% growth respectively. Sydney Airport remains committed to further investment into capacity growth for both aircraft parking facilities and expanding retail offerings.
The main reason behind the rise in share price of 'bond proxy' shares like Sydney Airport and Transurban Group (ASX: TCL) is the fall in interest rates. The US 10-year government bond is considered the risk-free rate. The US 10-year bond yield reached a five-year high of 3.2% in November 2018, which was also when the Sydney Airport share price hit a one-year low of $6.40.
The yields have since retreated some 20% to 2.6%, hence the rise of many 'bond proxy' stocks such as utilities, REITs and income stocks.
With the US Federal Reserve announcing that it will be 'patient' with further rate hikes and the RBA open to rate cuts, this could create positive tailwinds for the Sydney Airport share price.
Sydney Airport has also increased its income payment to shareholders year on year since 2013. The current income yield is around 5.1%. This is comparatively not a huge yield, but nearly double what you can get from a bank savings account.
Foolish takeaway
Sydney Airport is a solid business offering a good level of income with some degree of capital growth. I believe the current interest rate environment is quite positive for 'bond proxy' stocks. If investors are looking for a relatively lower risk investment with less volatility, then Sydney Airport might be one to consider.
