Is Transurban Group a Good ASX Dividend Stock?

Transurban Group's FY23 results highlight a strong performance across all operational fronts. The company achieved record-breaking Average Daily Traffic (ADT) exceeding 2.4 million trips, supported by growth in all market segments including large vehicles and weekend travel. This robust traffic volume translated into a record proportional toll revenue of $3,314 million, with additional inflation-linked escalations expected to further bolster earnings in FY24.?

Simultaneously, Transurban reported a record proportional EBITDA of $2,448 million, reflecting both the revenue growth and improved operational efficiency as evidenced by an increased EBITDA margin from 69% in FY22 to 71% in FY23. Financially, the company's balance sheet remains robust with extensive debt hedging at approximately 96% and ample corporate liquidity amounting to around $4.0 billion.

After experiencing a significant decline in revenue from $4.16 billion in 2019 to $3.16 billion in 2020 due to the COVID-19 pandemic, the company has recently recovered to pre-pandemic revenue levels. Additionally, the significant losses incurred over the past 2-3 years have been offset by key earnings growth. Operating cash flows have also improved, with current figures at $1.46 billion, significantly exceeding the $1.19 billion recorded in 2019. This recovery and growth in financial performance are further complemented by reduced debt levels and improved free cash flows, highlighting the company's enhanced financial stability.

The Australian Government plans to invest $110 billion over ten years in inland transport infrastructure through its Infrastructure Investment Program. This strong initiative, coupled with the increasing need for improved road infrastructure across Australia highlights a significant market demand. Major metropolitan cities, in particular, present highly compelling opportunities. This demand is projected to drive the Australian transportation infrastructure construction market size from US$25.8 billion in 2024 to US$33.65 billion by 2029 according to market forecasts, reflecting a compound annual growth rate (CAGR) of 5.45%. Investments in road infrastructure, driven by population growth, urbanization, and increased travel needs leading to congestion and longer travel times, are expected to be the primary growth drivers.

The company maintains an extensive delivery pipeline, with key projects nearing completion in 2024 and additional projects slated for 2025 and 2026. This pipeline provides significant assurance of revenue generation and capital inflows. The outlook over the next 5-10 years also remains highly promising, supporting substantial long-term growth and scalability.?

Transurban Group has maintained a steady track record of distributing dividends to its shareholders, with a clear pattern of regular payments. For the half year that ended on 30 June 2023, the company distributed 31.5 cents per stapled security, and it has announced a distribution of 32.0 cents per stapled security for the subsequent half-year ending on 30 June 2024. This slight increase from one period to the next indicates Transurban's commitment to delivering consistent or marginally improved returns to its investors. Such distributions are reflective of the company's strategy to balance shareholder returns with its operational and financial objectives, ensuring stability and reliability in its dividend policy.

Transurban Group has provided forward-looking dividend projections, aiming for 0.34 cents per share by June 2025 and 0.38 cents per share by June 2027. These forecasts indicate the company's planned trajectory of increasing dividends over the specified period, underscoring its commitment to enhancing shareholder returns and reflecting confidence in its future financial performance and strategic direction.

Source - Company Reports