What: During a day when the benchmark S&P/ASX 200 (INDEXASX:XJO) has risen 1.3%, shares in Asciano Ltd (ASX: AIO) have catapulted up 30 cents or 5.7% to be trading at $5.53.
So What: The national rail freight and cargo port operator provided an investor update today, which provided more detail around $150 million in cost reductions. The majority of these ($90 million) have been brought forward in time compared to expectations, and I believe the market is now anticipating higher growth during 2015.
Providing another boost is management's expectation for the company to be free cash flow neutral by the second half of 2014. This provides scope for an increasing dividend payout ratio in excess of 50% by financial year 2016. The market had been expecting a payout ratio under 45%.
The share price began the day at $5.23, only marginally above the 2014 low of $5.13. The price had fallen back from recent highs of $5.80 in mid-May.
Now What:
In my opinion, while not offering global exposure like Brambles Limited (ASX:BXB) , the company will benefit from an improving Australian economy. Significant operational leverage will be evident after having made investments in expanded capacity, productivity and efficiency. Even in a slightly deteriorating operating environment, costs can still be reduced and dividends increased. Asciano continues to grow and recover from the precarious debt levels at the time of the de-merger from Toll Holdings Limited (ASX: TOL).
Higher dividends and growth than Asciano…
While I do believe that Asciano will be a superior investment over time, higher returns may be achieved by a stock unearthed by our Top Motley fool analysts.
This stock has been nominated as their No 1 pick for 2014 and could be on the cusp of significant growth. It also offers a formidable fully franked dividend yield of 4.1% (or a grossed up 5.9%).
