SYD (ASX) Are SYD dividends sustainable?

Originally posted by happypunter ↑

I've been looking at recent reports for SYD and trying to understand their dividend, distribution model and whether it is sustainable long term.

From the latest half yearly report they are paying out in dividends at 15 cents an amount of $337mil which is more than double their npat $159mil for the half. I see from their presentation (page 10) they seem to be paying back the entirety of the operating receipts (so adding back depreciation and amortization expenses).

Their debt is $8.4 billion (up $250 million from previous report), cash up $110 million.

Now they do have decent growth across all segments but surely going forward there is a limit to how much growth is achievable from this single asset Sydney airport (not sure they can schedule in many more flights and there is only so much you can keep increasing landing fees and rentals on retailers - already seem very high).

So to me I question how sustainable it is to keep paying out this high dividend distribution rate. Their debt seems to be increasing and if down the track interest rates go up that could be a big problem. I would be interested in hearing the opinion of others, maybe I am missing something or don't entirely understand their business model or long term plan.

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You're not the first person to ask this. Have a look at my post on SYD from January:

http://hotcopper.com.au/threads/a-goood-day-to-buy.2674068/page-5?post_id=16825707

It's not unusual for infrastructure stocks to look like they are paying out unsustainable div yields and trading at ridiculously high PE ratios. It's a result of having a very expensive asset with high debt load and high interest and D&A charges but a very high cash flow due to low operating costs once the asset is completed.

The important thing to do is protect against a rise in interest rates and forex swings, which SYD have done through hedging.

So the dividends should be sustainable in the near term, although the rate of dividend growth probably isn't. As you said, there is only so much you can do to increase the profitability of a fixed asset like an airport. Even if they get the rights to the second airport they still would need to build the thing which would entail another massive debt load.