With all the current market turmoil that has seen major share price corrections across the board, is Transurban Group (ASX: TCL) a top ASX share to buy because of its defensive nature and perceived stability?
Strong reputation as a solid dividend payer
Transurban is a company that has gained a reputation as a strong and stable dividend payer. Investors are attracted to the bond-like stability of dividends Transurban has historically paid out. This has led to a strong gain in the Transurban share price over the past years.
In fact, I think this attractiveness may even increase over the next few months, as investors look for ASX shares that offer a higher level of perceived safety to all the current volatility. Transurban provides a slow-but-steady stream of cash flow that is highly resistant to recessions and other kinds of economic shocks.
Some market observers are concerned that the spread of the coronavirus in Australia could lead to fewer cars on the roads. However, I think any reduction would only be short-term and very minimal compared to the impact on the travel sector, where we’re already seeing impacts on flights in particular. In fact, I would argue that some commuters may even choose to travel by car rather than by public transport in crowded trains and buses.
Solid recent 1H20 results and good project progress
In its 1H20 results released in February, Transurban announced that its average daily traffic (ADT) grew by 2.3%, while proportional toll revenue increased by 8.6% to $1,396 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 9.5% to $1,094 million. This enabled the company to reaffirm its plan to pay a FY20 distribution of 62 cents per share.
In Melbourne, Transurban’s proportional toll revenue increased by 3.7% to $424 million. Meanwhile, in Brisbane, proportional toll revenue increased by 6.6% to $217 million. Additionally, the company’s North American business grew strongly by 16.2% to $186 million.
The WestConnex acquisition is reported to be tracking well. Further, Transurban’s development projects are reported to be progressing in Sydney with commissioning works underway at NorthConnex. Additionally, the new M5 tunnels are anticipated to be completed in mid-2020. The M5 West integration program is also on track.
Are Transurban shares a buy?
With strong rises in its share price over the past few years, Transurban is currently trading with a very high price-to-earnings (P/E) ratio of around 160. So, it certainly is not looking cheap at current prices.
However, I still believe that Transurban is a reasonable buy for investors looking for relatively high share price stability in the face of a very turbulent share market environment.
If you observe Transurban’s share price movements in recent weeks when the ASX and global markets first started to see major sell-offs, you’ll find that Transurban has weathered the storm a lot better than most.
Transurban shares have only dropped 6.3% in value since 20 February, compared to the S&P/ASX 200 Index (INDEXASX: XJO) which has lost in excess of 10%.
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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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