Could Transurban Group (ASX: TCL) shares be a recovery idea as an ASX dividend share?
Transurban is one of the world’s largest toll road businesses as an owner, operator and builder.
Transurban distribution news
The toll road business announced today that it is going to pay a distribution of 15 cents per security/share for the six months ending 31 December 2020.
Transurban advised that it continues to anticipate that the FY21 distribution will be in line with free cash, excluding capital releases. That includes the $0.15 per share distribution above that was just declared.
How much will the FY21 distribution be and what’s the yield?
If 2020 has shown us anything for Transurban, it’s that business conditions and distributions are not guaranteed. So anything could happen over the next six months.
If we expect the same distribution in six months and simply double the $0.15 distribution to $0.30 per share for the full year, then Transurban might have a distribution yield of 2.2% at today’s share price.
However, the recovery from COVID-19 in the second half could be (and will hopefully be) better than the first half of FY21. CommSec has a distribution projection of 37.6 cents per share in FY21, which would equate to a distribution yield of 2.7%.
A 2.7% yield isn’t exactly a huge yield. At the moment the focus is more on the recovery of Transurban’s traffic and earnings.
How is the traffic recovery going?
In the recent announcement about the sale of a stake in its US business, it said that despite COVID-19 impacts, traffic increased through October and November.
In Melbourne on CityLink, traffic has shown progressive improvement as government restrictions have been gradually eased over that period, and in Sydney the NorthConnex tunnels opened to traffic on 31 October 2020. Traffic on Transurban’s North American roads remains subdued given the continued impacts of COVID-19, particularly on the Express Lanes assets.
Is Transurban an opportunity?
Considering interest rates are so low, it’s possible that the Transurban share price would be materially higher if traffic were at normal levels. But I’m not sure when/if traffic will go back to normal. Lots of people may have permanently changed to working at home more (or completely), meaning that those daily commutes may have been removed forever.
I think Transurban could be a medium term opportunity, but for income I think there are better ASX dividend shares for both the short term and long term such as Brickworks Limited (ASX: BKW) and Magellan Financial Group Ltd (ASX: MFG).
