Why the Transurban share price could be a buy today

Is the Transurban Group (ASX: TCL) share price a buy if the company acquires the remining stake of Sydney's WestConnex project?

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Transurban Group (ASX: TCL) shares are well known among ASX dividend investors. Before the coronavirus pandemic struck, Transurban was often regarded as having one of the 'safest' dividends on the ASX. That's because the company is a toll-road operator and owns many of the major arterial routes in the capital cities of Sydney, Melbourne and Brisbane, among others.

Toll roads are highly defensive assets because they are often unavoidable in the travels of individuals and businesses. Or so it seemed. Transurban shares were smashed in March as lockdown orders came into effect. The company was commanding a share price of more than $16 in February. By late March, the Transurban share price was under $10. Restrictions on travelling directly translated into far fewer cars and trucks on the road. And that meant less toll revenue for Transurban.

Last month, the company announced its final dividend/distribution for FY2020, which will come in at 16 cents per share. That's a substantial drop from the last 2 dividends Transurban has paid (31 and 30 cents per share respectively).

But both the company's business model and the Transurban share price are on the mend as we speak. At the time of writing, Transurban shares are asking $13.82.

Transurban could be expanding

Transurban's portfolio of toll roads is already bulging. It owns 16 motorways in Australia and 4 in North America. Sydneysiders would be very familiar with the M2, M4, M5 East, M7, Cross City Tunnel and Eastern Distributor roads that the company owns. Similarly, Melburnians would know the Western Link, Southern Link and West Gate Tunnel (under construction). Brisbanians might be familiar with the Gateway Motorway, Logan Motorway and AirportLink.

As you can see, Transurban has a massive footprint in the transportation networks of our major cities.

But it looks like the company's grip could expand even further which could be good news for the Transurban share price. According to an article in Monday's Australian Financial Review (AFR), Transurban is in the running to acquire the remaining 49% of Sydney's new WestConnex project. WestConnex is the brand name of a series of new tolled roads currently or recently under construction. It involves the duplication and extension of the M4 and M5 motorways, as well as a tunnel under Sydney's Inner West that will connect the two upon completion.

Transurban already owns the initial 51% in WestConnex, but according to the AFR, the company might be keen to shell out around another $10 billion for the remaining 'rump stake' and is currently involved in negotiations between the NSW government and several potential buyers.

Is the Transurban share price a buy if the company wins WestConnex?

If Transurban is successful in acquiring the remaining stake of WestConnex, it will almost literally have a monopoly on the tolled roads of Sydney. Monopolies are pretty nice to have in one's share portfolio. Of course, toll roads are heavily regulated, and Transurban isn't exactly able to charge whatever it likes for using them. But most of the company's contracts are very generous, allowing the company to raise its tolls by 4% per year or the rate of inflation, whichever is higher. Given that inflation is currently almost non-existent, that's a pretty good deal in my view.

Foolish takeaway

I've always liked Transurban. It's a strong company, with a portfolio of vital infrastructure assets that I don't see being disrupted for at least the next few decades. As such, I think it's a great share for an ASX dividend portfolio.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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