Like its former parent company, Macquarie Group (ASX: MQG), Sydney Airport Holdings Ltd. (ASX: SYD) takes a conservative approach to managing its business. Not coincidentally, Sydney Airport also has a long track record of paying strong, consistent dividends and creating value for shareholders with consistently rising traffic and earnings before interest, tax, depreciation and amortisation (EBITDA).
Each of the past 10 years has seen a modest increase in total revenue and passenger numbers, resulting in steadily increasing profit figures apart from 2011, which saw a roughly $240 million loss as a result of the sale of its stake in Brussels Airport. The future looks to hold much the same for Sydney Airport, with consistent developments to improve traffic and revenue performance whilst simultaneously managing its long-term debt facilities.
Dividends, yes, but growth?
Sydney's dividend has been constant over the past decade, paying a minimum of 19c fully franked for eight of these years. However, owing to some wrangles with the tax office, these dividends are no longer fully franked. Hopefully they will become franked again at some point in the future, though for now the lack of franking is only a small minus against today's healthy ~5.6% dividend.
Investors looking for capital growth may be better off looking elsewhere, since Sydney's growth is fairly limited and largely organic in nature, not caused by acquisitions and large expansions. At today's price, Sydney Airport has a P/E ratio of 39.15 and a price-to-book valuation of 3.52, both quite high for an infrastructure asset.
Its apparent value comes from its solidity as a dividend stock and the secure nature of its earnings; Sydney Airport is, after all, the only show in town. This is likely also the reason behind Sydney's vociferous opposition to the construction of a second airport in that city, because as I noted in an article late last year, the company could probably fund the second airport on its own if it wanted to.
Foolish takeaway
Sydney Airport is still a great dividend stock, and looks to remain so for the foreseeable future. Personally, I am a more aggressive investor who likes to see companies expand, which is one of the reasons (along with its high price) I no longer hold this stock. If you're after solid dividends for the long-term however, hold away, although I wouldn't be too keen to buy at its current price.
