Australia’s largest rail freight business, Aurizon (AZJ.AX), which was floated by the Queensland Government in 2010 under the name QR National, saw its share price touch an all-time high yesterday. The cause of the jump to $4.44 was the company’s announcement of plans for a new long-term capital structure.
In “banker talk” the balance sheet is currently “lazy”. In response, the board has determined to work the balance sheet harder through capital management initiatives that primarily involve taking on more debt but also potentially through a minority sale of certain regulated assets.
The market was certainly pleased with the announcement. It creates options for the company, including the opportunity to pursue acquisitions, buy back stock or even raise the dividend. For shareholders, the high share price means the company now trades at a forward price-to-earnings (PE) ratio of 21 times and a yield of just 2%.
Current dividend yields are equally disappointing across the peer group. Rail freight and port operator Asciano (AIO.AX) is on a forward PE of nearly 16 times and also a yield around 2%. Asciano’s fellow port operator Qube Logistics (QUB.AX) is trading on a hefty 22.5 times and a yield of 2.5%. While the three freight companies mentioned above are all trading near their 52-week highs, logistics and transport company Toll Holdings (TOL.AX) is still feeling the pressure of tough economic conditions with its shares a long way from their high. Toll is currently trading on a forward PE of just 12.6 times and a yield close to 5%.
Some investors mistakenly calculate their yield off the purchase price and also like to think they have a tasty capital gain. This thinking is akin to having your cake and eating it too. As a share price moves, so does the dividend yield, which means investors should re-evaluate their investments based on current prices and current yields.
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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. Motley Fool contributor Tim McArthur owns shares in Toll Holdings.