Transurban shares poised for rapid dividend recovery: expert

Morgans believes the ASX 200 toll road operator and developer will provide a high level of risk-adjusted returns over the next 12 months.

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Transurban Group (ASX: TCL) shares are still trading about 15% below their pre-pandemic levels in February 2020.

Though, until this week’s broader selling action, the S&P/ASX 200 Index (ASX: XJO) toll road developer and operator was in the green for the calendar year.

Closing 1% lower yesterday, Transurban shares are now down 1% in 2022, which still compares favourably to the 13% year-to-date loss posted by the ASX 200.

At the current share price, Transurban has a market cap just shy of $43 billion and pays a dividend yield of 2.6%, unfranked.

Looking ahead, however, the company could be on track to return to the fatter dividend yields it paid before the pandemic lockdowns impacted its business model.

Well placed for population growth and urbanisation

Analysts at Morgans have placed Transurban shares among the top 12 ASX 200 companies it thinks will provide the highest risk-adjusted returns over the next 12 months “supported by a higher-than-average level of confidence”.

Transurban’s Australian and North American toll road operations and projects also see it listed among the broker’s most preferred sector exposures.

Andrew Tang, equity strategy analyst at Morgans, explained why Transurban shares made the broker’s top 12 list on Livewire.

According to Tang:

Transurban owns a pure-play portfolio of toll road concession assets located in Melbourne, Sydney, Brisbane, and North America. This provides exposure to regional population and employment growth and urbanisation.

Given very high [earnings before interest, taxes, depreciation and amortisation] EBITDA margins, earnings are driven by traffic growth – with the recovery from Covid – and toll escalation.

Approximately half of the tolls are indexed in line with the consumer price index (CPI) with the rest fixed at roughly 4% per year.

Morgans believes Transurban shares “will continue to be attractive to investors given its market cap weighting, [which is] important for passive index-tracking flows, the high quality of its assets, management team, balance sheet, and growth prospects”.

As for dividends, Tang said, “Watch for rapid recovery in DPS [dividends per share] alongside traffic recovery and WestConnex acquisition prospects.”

He said a negative overhang that investors should keep an eye on is “the contaminated soil disposal issues related to its West Gate Tunnel Project.”

How have Transurban shares performed longer term?

Over the past five years, the Transurban share price is up 12%. By comparison, the ASX 200 has gained 14% over that same time.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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