With its 4.3% distribution yield, is the share price of toll-road operator Transurban Group (ASX: TCL) a buy?
Transurban has been a solid performer for shareholders since the start of the year, its share price has risen by almost 20%.
We are now starting to see which businesses are truly 'defensive' and perhaps also the investment flows from businesses that pay franking credits to ones that don't.
I certainly think that Transurban generates a safer level of earnings compared to big banks like Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC).
Today we learned that CBA suffered a profit decline, whether you include or exclude the large royal commission provision.
Yet in the March quarter 2019 update from Transurban we saw continued growth, namely that group average daily traffic (ADT) increased 2.3%. I prefer to own businesses that can grow in all economic conditions.
Every segment of Transurban saw positive traffic growth. Sydney ADT grew by 2.1%, Melbourne ADT grew by 3.1%, Brisbane ADT increased by 1.1% and North America ADT increased by 2.9%.
The strategy of working on several large projects simultaneously like the M4 tunnels, WestConnex, the West Gate Tunnel and the 395 Express Lanes could turn out to be a good one. Once all of these projects are completed it is likely to significantly improve cashflow.
Transurban has several large backers such as Magellan Infrastructure Fund (ASX: MIC) which had Transurban as its largest holding at the end of March 2019 at 8.3% of the portfolio.
The pleasing thing for Transurban shareholders is that it is consistently growing its distribution, although it has a lot of debt on its balance sheet at the moment.
Foolish takeaway
Just because something has gone up recently does not mean it's a better investment today. With a yield of just over 4% for FY19 I don't think Transurban represents good value for income or total return investors right now.
