TCL share price in focus
Transurban, founded in 1999, manages and develops urban toll road networks in Australia, Canada and the United States.
Transurban has an interest in 22 urban motorways across its portfolio. Some of its notable motorways include the CityLink in Melbourne, Hills M2 in Sydney and the Logan Motorway in Brisbane.
Transurban invests healvily in the development of new projects which are paid back through collecting toll revenue from motorvehicles.
The appeal of ASX Industrials shares
The S&P/ASX 200 Industrials Index (ASX: XNJ) is made up of companies involved in transportation, commercial and professional services, and the building and operating of infrastructure. Over the last 5 years, the industrials index has returned 1.7%. That’s less thanthe ASX 200 return of 3.6% over the same period. So, if we were to generalise, why might you want to invest in companies in the industrials sector like TCL?
Reliability
Industrials companies, more often than not, have strong and relatively reliable revenue streams. This can be for a couple of different reasons.
For a company like Downer EDI Ltd (ASX: DOW), a significant part of their revenue is derived from large, multi-year government contracts. While it can be hard to obtain these contracts, and infrastructure investment falls during economic downturns, once the company has the contract, that revenue is effectively locked in for the next few years. This makes it relatively easy to predict future revenue.
For other industrials companies like Transurban Group (ASX: TCL), Qantas Airways Ltd (ASX: QAN), or Brambles Ltd (ASX: BXB), the reliability stems from the fact that they provide essential and frequently used services. Transurban operates toll roads used daily by commuters. Qantas can take hits on leisure travel but has significant business travel and freight operations which are more resilient. And Brambles provides the pallet pool that enables transport of just about every item at the supermarket or Kmart.TCL’s revenue has experienced a compound annual growth rate (CAGR) over the last 3 years of 12.6%.
Dividends
One of the obvious benefits of stable revenue is that industrials companies tend to be able to pay consistent dividends.TCL currently offers a dividend yield of 4.5% and has averaged 3.6% over the last 5 years. Adding an industrials company like TCL can be an effective way of drawing income from your portfolio while remaining invested in equities.
A bet on the economy
An investment in an industrials company is in many ways a bet on economic growth. For most of the companies in this broad sector, revenue growth is almost directly tied to government investment in infrastructure (more big contracts, bigger logistics networks) and population growth (more people using toll roads, public transport, and other infrastructure). So, when the economy is strong, spending is up, and populations are growing, a company like TCL can be in a great position to benefit.
TCL share price valuation
One way to have a ‘fast read’ of where the TCL share price is would be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, Transurban Group shares have a dividend yield of around 4.54%, compared to its 5-year average of 3.64%. Put simply, TCL shares are trading above their historical average dividend yield.
Be careful how you interpret this information though – it could mean that dividends are growing, or it could mean the share price is falling. In the case of TCL, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the TCL share price.
