In turbulent market times, defensive asset classes can provide a shield to some of this market volatility.
I particularly like Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL) as they are both in the Transportation industry group within the Industrials sector and are both heavily involved with infrastructure assets. These types of companies appeal to me due to their relative stability of revenues and the local growth opportunities as our population, and therefore our infrastructure requirements, continues to increase.
As both companies are ASX 50 shares, they are generally purchased by super funds and managed funds and also have strong weighting within exchange-traded funds (ETFs), which are becoming increasingly popular with investors.
Both are strong defensive shares from the perspective that they are unlikely to be impacted by economic downturns, thus providing more stable dividends.
Transurban is one of the world’s largest toll-road operators and the largest operator of private toll-roads in Australia. It also manages and develops toll-roads in North America. Over the past 12 months, the Transurban share price has grown by an impressive 31.05%.
In its most recent financial results, Transurban’s earnings before interest, tax, depreciation and amortisation (EBITDA) rose strongly from $1,670 million in FY18 to $2,021 million in FY19, providing a very strong 21% year-on-year increase.
Transurban appears well set to see strong growth continue over the next decade, with a number of new toll roads scheduled to be completed within the next 3 to 5 years. A significant driver of increasing use of toll roads is the growing congestion on our main roads, which seems to be getting progressively worse each year.
Transurban has also linked future toll rises to inflation, giving it a lot of pricing power and providing strong investor certainty with regards to the company’s future earnings. It also provides a good dividend yield of 3.83%.
Sydney Airport’s share price has performed strongly over the last 12 months, increasing by 29.85%. Sydney Airport is a pure monopoly, without any competition at all, which gives it enormous pricing power. This can be illustrated by the extraordinarily high parking fees in its car parks. The airport’s monopoly status also enables it to leverage all the growth in its industry segment, as passenger numbers continue to climb.
Sydney Airport also has a diverse earning base. In addition to charges to airlines, it generates revenues from retail operations, property rentals, car rental concessions, security and parking and ground transport services.
In the half year to September 2019, revenues rose 3.4% higher compared to FY18 and totalled $797.1 million. EBITDA rose 4.1% higher to $649.2 million despite a 0.2% drop in passenger numbers to 21.6 million. Sydney Airport currently offers an attractive dividend yield of 4.62%.
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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and 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.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020