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Are Transurban shares still a buy for ASX dividend income?

Sebastian Bowen
dividends

Is the Transurban Group (ASX: TCL) share price still a buy for ASX dividend income?

Transurban is a company that has amassed a reputation as a strong dividend payer in the past few years. Investors have been attracted to the perceived bond-like steadiness of the dividends Transurban pays out, which I think partly explains why the TCL share price has ballooned by 82% over the past five years.

In fact, the Transurban share price has today made another new all-time high of $16.39. So at these levels, is this steady-as-she-goes company still a good option for dividend income?

Why the Transurban share price is at an all-time high

As mentioned above, Transurban has developed a reputation as a ‘safe’ dividend payer, which is like catnip for income investors in this low interest rate environment we currently find ourselves in.

Transurban owns and operates toll-roads across Australia and North America – which as an asset that provides a slow-but-steady stream of cash flow to the company that is highly resistant to recessions and other kinds of economic shocks.

It’s this stream of defensive earnings that investors want a piece of.

Is Transurban a buy at this all-time high share price?

Well, in my opinion, that depends on how badly you as an investor need a reliable dividend. Transurban (in my opinion) is not cheap at these prices, no matter what lens you look through. The company is trading on five times its book value and a laughable 190 times its earnings (although this metric has been somewhat skewed due to some earnings adjustments).

On current prices, you can expect a trailing dividend yield of 3.74% for Transurban shares – which is solid but really isn’t too impressive compared with some other ASX dividend shares out there.

Whilst I do think this dividend is relatively ‘safe’ when comparing alternatives, it’s worth noting that no ASX dividend can ever match the certainty of a bond or term deposit. The company can always trim this dividend with very little notice. I’m not saying this is likely, but it is still a possibility.

Foolish takeaway

I think Transurban is one of the more reliable ASX dividend shares out there today, but for me personally, it doesn’t represent good value for money at the current price. I understand that investors are desperate for a ‘safe’ yield in today’s market, but just bear in mind that that ‘safety’ comes with a hefty price tag right now.

The post Are Transurban shares still a buy for ASX dividend income? appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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