Toll road operator TCL is trading in line with where it started in 2023, though it has paid 61.5c in dividends last year so shareholders have enjoyed some return, albeit muted, equivalent to around half that of the ASX200 Accumulation Index. Last week, they announced their quarterly traffic numbers, which were mixed but overall weaker than expectations:
- Overall traffic volume grew +0.9% vs MQ23, below expectations that were above 1%.
- NSW slipped -0.6% on higher construction activity on three routes.
- VIC added +1.6%, mostly driven by rebounding weekday traffic.
- Brisbane was soft, -0.9%, the company blaming higher rainfall.
- North America was up 5%.
While the numbers were short of consensus, there was only a muted impact on dividend expectations for the final dividend in June, with analysts looking for 31c, slightly below last year’s final dividend. Transurban is on an expected dividend yield of 4.84% unfranked, only marginally above the Australian 30-year Bond currently paying 4.61%. Investors are currently happy to accept a 25bps yield premium for TCL at this stage, however, bond payments won’t grow, whereas dividends might. Earnings are expected to grow ~20% in each of the next two years, but strangely, the dividend expectations aren’t showing the same sort of growth with ~5% p.a. increase for the next 3 years, though this does explain why there is such a tight premium to the 30-years.
Transurban has recently seen some pushback from the ACCC and is unlikely to be able to expand its Australian footprint much more. It does, however, see opportunities in North American and European markets to grow its asset base while also enjoying long-term tailwinds of population growth and inflation-linked toll increases.
- Transurban (TCL) remains a great stock for long-term income and is on our radar for the Active Income Portfolio – we have added it to our Hitlist.
MM remains bullish on TCL for income
Add To Hit List
