Toll road owner Transurban is one of 50 "global cash cows" identified by Citi. Photo: Phil Weymouth/ Bloomberg News
If you want some money back on the road tolls you pay, don't just drive on those motorways, invest in the company that owns them.
Transurban, which has a portfolio of 11 roads in Australia including Melbourne's CityLink, Brisbane's Gateway Motorway and Sydney's Eastern Distributor, is one of the world's top listed "cash cows", Citi analysts say.
Shareholders want cash, and companies around the world are tripping over themselves to return capital to their investors, at the expense of investing in their own businesses.
"Investors and CEOs who have embraced the market's preference for payouts have been rewarded with healthy outperformance," the Citi team – led by the firm's global equity strategist, Robert Buckland – writes.
And in the case of Transurban, the company is reinvesting only 44 cents for every dollar that it pays out to shareholders, on Citi's calculations, making it a prime local exponent of a global theme.
Listed businesses around the world reinvested $1.70 for every $1 they paid out to shareholders in 2014. This is less than half the $3.80 they reinvested for every $1 paid out in 1995.
The global listed corporate sector cut investment by 6 per cent in 2014, but boosted shareholder payouts by 15 per cent.
It's "an acceleration of a trend that has been in place for many years," the Citi team write in a new note – one that "is likely to continue in 2015".
"The message to CEOs is simple – if you want a higher P/E [price to earnings ratio] and a rising share price, then pay out more and invest less," the analysts write. "Right now the market seems to want 'cash cows', not 'capex compulsives'."
To that end, the Citi analysts have put together a list of "global cash cows" that should continue to benefit from this trend. They find that this strategy, rebalanced monthly, would have generated a total return of 15 per cent a year since 2011, well above the 8 per cent return from their global sharemarket benchmark, which excludes financial sector firms.
Transurban, alongside Canadian Pacific Railways, are two capital-intensive businesses in a list that favours "capital-light" operating models (eight US tech firms make the list).
But the Citi strategy "prefers to collect cashflows from sunk capex, rather than financing anything new", which allows Transurban through the door.
Without an explicit test for valuation, the cash cows look expensive on a P/E basis, admits Citi, but it has clear "yield attraction".
They also find that the cash cow portfolio is "not especially sensitive" to rising bond yields.
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