How Sydney Airport Holdings Pty Ltd is cashing in on the tourism and population boom

Sydney Airport Holdings Pty Ltd (ASX:SYD) is a monopoly that offers potential for long-term growth.

Dave Gow

Dave Gow has been a Motley Fool contributor since May 2018. After deciding the traditional 'rat-race' wasn't for him, at age 19, Dave began saving aggressively and became fascinated with the world of investing. From age 19 to 28, Dave worked as a Storeman and Forklift Operator while investing heavily, first into property and later shares. In 2015, he stumbled on, and fell in love with a different investing approach - buying shares for their growing dividend stream. By early 2017, Dave reached financial independence, and is now slowly transferring his savings from property to dividend-paying shares. Enjoying his early retirement and newfound freedom, Dave spends much more time at home with his partner and dog, works on his personal blog - as well as exercising and writing some investment articles from time to time.

Published May 13, 2018 9:51 pm AEST

Sydney Airport Holdings Pty Ltd (ASX:SYD) is making hay while the sun shines, and is one company worth a look for growing income. Here's why…

After reaching a low in 2011, population growth has increased in Australia.

In the last 12 months, this growth has been accelerating, with our population now increasing at a rate of around 400,000 people per year.

That's truly a massive increase, and much of this is in our biggest capital cities, Sydney and Melbourne.

While it may mean our cities become more congested and we can't find a parking spot at the shops, it can also be an opportunity.

In a double win for Sydney Airport, the population is growing strongly at the same time as tourism is booming.

That means many more people are flowing through Sydney Airport each year.

The two trends of strong population growth and the growing middle class of Asia, look set to continue.

Over the last 5 years, Sydney Airport has managed to increase its distribution to shareholders by 10.4% per annum.

Not only that, the stock has performed incredibly well over the longer term too.

Over the last 10 years, Sydney Airport's total shareholder return (TSR) has been 17.5% per annum. Quite impressive considering this period includes the GFC.

More recently, management have guided for another increase in the distribution from 34.5 cents to 37.5 cents per share – an increase of 8.7%.

Given the huge costs involved, Sydney Airport carries a fair amount of debt. If and when interest rates rise, that could start eating into earnings growth.

Foolish takeaway

Currently, Sydney Airport is trading on a yield of 4.8%, and a forward yield of 5.2%.

Accounting for only modest growth, I think this is a decent investment with monopoly-like qualities.

Sydney Airport has pricing power, which should help support earnings and provide a solid income stream over time.

While there's no guarantees in investing, I think it's a fair bet to assume the population of Sydney, and more importantly, the people moving through the airport, will be much higher 10 years from now.

Some consider Sydney Airport one of those bottom-drawer blue-chip stocks, and bought at the right price, I would tend to agree.

If this stock isn't for you, there's plenty of other opportunities in the current market…

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