Sydney Airport Holdings Ltd (ASX: SYD) shares currently have a whopping dividend yield of 5.05%. Are they a buy for dividend income?
Sydney Airport Holdings is the company that operates the Kingsford Smith Airport. It currently has a 99-year lease on the airport, but it will revert back to government ownership at the end of this century. According to Sydney Airport, it generates $30.8 billion in economic activity a year, which is equivalent to 6.4% of the NSW economy.
What To Look For In Dividend Shares
When you’re looking for dividend shares, the most important factors are stable earnings and growth. You don’t want dividends to remain stagnant forever, but you also don’t want them at 100 cents per share one year and 10cps the next.
One company that has very stable profits/earnings and constant growth is Sydney Airport.
The Results
In their recent FY18 report, Sydney Airport revealed:
- Increase in revenue of 6.8%
- Increase in EBITDA of 7.2% (click here to learn what EBITDA means)
- 5% growth in total passengers
- Dividend distribution increased by 8.7%
This is the kind of company that can make an excellent dividend investment. Growth is not huge, but it is very stable. The Sydney Airport share price has increased over three-month, six-month, one-year, five-year and ten-year periods. At the same time, Sydney Airport has consistently grown dividends from 21cps in 2011 to 37.5cps in 2018.
As the population of Sydney grows, the use of Sydney Airport, and therefore revenue, will grow with it.
Risks
In the interest of balance, there are a couple of risks to mention that Sydney Airport faces.
The first, which is not really a risk, but more of a note, is that the dividend distributions are unfranked. If you’re looking for fully franked dividends, you might have to look at another Rask Media article which looks at the best fully-franked dividend investments.
Another risk is the slowdown of population growth in Sydney. The rate of growth has continually decreased since 2015, moving contrary to the increasing house prices. Slower population growth will likely result in slower revenue growth for Sydney Airport and, possibly, lower or stagnant dividends.
The final risk to mention is the construction of the Western Sydney Airport. Although construction will not be completed until 2026, this does remain a risk for the future of Sydney Airport. The new Western Sydney Airport will potentially drag business away from Sydney Airport, slowing growth further and putting future revenues at risk.
Summary
The Sydney Airport share price is getting closer to all-time highs of around $7.70, but as a long-term investment this makes sense to me. It’s stable, it has great growth opportunities and is continually increasing its dividends.
For more share ideas with growth and dividend potential, check out the free report below.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
