Interest rates are at record lows and it doesn’t look like it is going to increase anytime in the near future. The fall in interest rates is positive for long duration income generating assets such as infrastructure assets as this reduce the discount rate used in calculating the present value of the future cash flows.
The consensus market view through low forward bond yield curve is that the low rates are here to stay for the foreseeable future. Our mirror this but investors should still be cautious in chasing dividend stocks.
ASX TCL Summary
Transurban is a infrastructure play where it owns a portfolio of toll roads across Australia and single asset in US (Northern Virginia). It is the largest traded on the ASX and has outperformed the market post Covid due to the consistency in its earnings.
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Toll roads can be attractive for income driven investors given the stability on earnings and annual CPI linked increases. However there is a difference between owning stabilized toll roads and developing new ones.
Developing toll roads comes with its own set of risk such as construction timing, costs and variability of the ultimate traffic versus original forecast in the feasibility study. The risk if the actual revenue falls short of forecast can result in the asset value being lower than assumption.
The Australian assets are near stabilization which means that growth in year on year revenue are in low single digits as a function of toll increases and traffic growth while future increase in earnings will be primarily driven by the the Northern Virginia asset.
Debt Structure
Debt plays an important role in the capital structure for TCL to deliver reasonable equity rate of return for investors. A large portion of its debt is denominated in US currency structured as combination of corporate facility and non recourse asset backed debt. The rest of the debt are denominated in AUD.
Transurban Share Dividend
The group has benefited from decline in interest rates via lower interest cost and higher asset values. It has passed on the increase in income via increase in dividend payments to shareholders.
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TCL Dividend Dates
Interim Dividend: February
Final Dividend: August