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Coronavirus: Sydney Airport’s ‘safe share’ myth exposed

Prior to the coronavirus-induced 2020 stock market crash, Sydney Airport Holdings Pty Ltd (ASX: SYD) had an impeccable reputation as an ASX dividend share.

As interest rates have been progressively lowered over the past few years, interest in Sydney Airport shares has increased – fuelled by the perception of the airport as a ‘safe’ dividend payer.

There was a good reason for this reputation too. Sydney Airport has a virtual monopoly on international air travel in and out of Sydney (and NSW by extension).

It’s a company that has the rare privilege of charging pretty much what it wants to charge its customers (as anyone who has had the misfortune of having to park there will tell you).

For these reasons, the Sydney Airport share price had been on an absolute tear in recent years, climbing from around $5 in 2015 to a high of $9.30 just over a month ago – an absurdly high share price for this business. But investors didn’t care, all they seemed to be after was Sydney Airport’s rock-solid dividend, which was progressively pushed lower and lower (yielding around 4% last month) as investors fought over SYD shares.

Who could disrupt such a safe, monopolistic, essential business like Sydney Airport, after all?

Well, the coronavirus unfortunately answered that question. Myth busted.

We are today seeing unprecedented travel restrictions around the world. The Australian government has announced that all non-residents/citizens will be barred from coming to the country and has advised all Australians not to travel at all. Qantas Airways Limited (ASX: QAN) has grounded almost all of its aircraft for at least the next month as well.

This is obviously a cocktail of terrible news for Sydney Airport.

Today, Sydney Airport shares are trading for just $5.02 after falling as low as $4.44 this week. On this price, the company is offering a trailing dividend yield of 7.77%.

Are Sydney Airport shares a buy today?

Firstly, I would expect some terrible earnings (and perhaps even a dividend cut) in this financial year for Sydney Airport (and possibly FY21). There’s no sugar coating that.

However, I still think the long-term prospects for this business remain strong and the current share price is a compelling deal for ASX dividend investors out there.

Australia and the world will eventually recover from this disaster and I would expect ‘business as usual’ to return for Sydney Airport (even if it does take a while). Air travel isn’t going anywhere anytime soon, and Sydney Airport is always going to be Australia’s major international gateway.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. 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.