Is the Transurban Group (ASX: TCL) share price a buy for income?
I think this is a timely question considering the Reserve Bank of Australia (RBA) may be about to cut interest rates tomorrow.
Investors are seeking solid sources of income in light of the difficult circumstances that the RBA has put savers into, and the fact that Australia's economy is faltering.
Since the GFC, Transurban has been one of the most solid ASX income shares because it has grown its distribution every year in that time.
In 2009 the toll road operator paid $0.22 per share and this year the business will have paid $0.59 per share. That's an increase of 168% in just a decade.
Transurban can point to a consistently growing volume of vehicles on its toll roads for its performance. Transurban's road networks in Sydney, Melbourne and Brisbane all continue to report growth of average daily traffic (ADT).
However, I do think it's right to question whether Transurban is a buy today.
It's fair to say that share prices of 'income' businesses should go up as interest rates go down, but we must still question the price we are paying at the time. As the US has shown, interest rates won't always be as low as they are in Australia over 2019 and 2020 compared to the longer-term.
There is also the question mark about what happens to toll road traffic if Australia goes through a recession. Transurban's earnings may not be as bulletproof as some seem to think and therefore the income may not be as defensive.
Foolish takeaway
It's trading at 60x FY20's estimated earnings with a 4.2% distribution yield. I think the current price is too expensive for me for a long-term buy, there are also many road projects that need completing on time and on schedule.
