Shares in Sydney Airport Ltd (ASX: SYD) climbed 2.7% today after the airport posted mid-single digit earnings and revenue growth for the full 2015 financial year.
The group posted net operating receipts of $577 million on revenues of $1.23 billion and forecast distributions of 30 cents per stapled security in 2016, up 17.6% on the 2015 year.
This stock is particularly attractive to defensively-minded income investors and next year's payout is expected to be fully covered by net operating receipts and places the group on an attractive 4.55% yield when selling for $6.59 per share.
The group carries net debt of $7.4 billion, around 7.4x the $1 billion in full year EBITDA posted, although this is manageable due to its defensive earnings streams and this is one utility-style stock that has a unique characteristic in its genuine growth potential.
Powerful tailwinds
Over the year international passenger growth was particularly strong in part as a consequence of the falling Australian dollar, with arrivals from India, the USA and Philippines all growing quickly.
However, the standout stat is Chinese passenger growth lifting nearly 18% over the year in a demonstration of the fast-rising Chinese middle class as a key investing theme that Australian investors have plenty of opportunities to profit from.
Sydney Airport also enjoys a wide moat in being a key piece of infrastructure with no real competition as the international gateway to Sydney and Australia. This means airlines have no alternative but to pay its aeronautical fees, while passengers also have little choice in paying for non-aeronautical services like car parking, or food and the all-important beverages.
Its Kiwi peer Auckland International Airport (ASX: AIA) is also creaking under the weight of strong passenger growth numbers and has also delivered investors market-thumping returns over the long term.
The roaring success of Sydney Airport again brings into focus the decision of the bankers at Macquarie Group Ltd (ASX: MQG) to dump its ownership of the airport at the end of 2013. Since then the airport's valuation has lifted around 70%, while paying an attractive dividend and retaining a bright outlook.
The bankers at Macquarie will have done well to get better returns on employed capital elsewhere, although they have been aggressively investing in motor vehicle finance and airplane leasing deals since the airport sale.
Can Sydney Airport shares keep thumping the market?
For income seekers in particular Sydney Airport looks an attractive opportunity amongst a field of ASX large-cap shares dominated by resources businesses and the big four banks. Sydney Airport has delivered a total shareholder return of 37% per year to investors over the past five years, although at current prices it is trading on a high valuation relative to its history and expected dividend yield.
Investors then should be careful what price they pay as the group carries significant debt and is vulnerable to any prolonged general economic downturn, or a more specific downturn in the travel sector due to an act of terror, or health epidemic for example. That said, Sydney Airport looks likely to offer solid long-term returns as part of a balanced investment portfolio.
