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Spotlight on Atlas Arteria: A Compelling Dividend-Paying Stock
I aim to highlight some of the most interesting dividend-paying stocks on the ASX, providing key data and insights to assist in well-informed investment decisions. Today, we’re focusing on Atlas Arteria, a major player in the global toll road sector.
Overview of Atlas Arteria
Atlas Arteria (ASX: ALX) is a prominent operator, owner, and developer of toll roads, holding a diverse portfolio of five toll road assets across France, Germany, and the United States. The primary assets under its management include:
- APRR (30.8% ownership): A significant 1,890 km motorway network situated in eastern France.
- ADELAC (30.8% ownership): A 20 km commuter road that links France to Switzerland, adjacent to APRR.
- Dulles Greenway (100% ownership): A 22 km toll road located in Washington, DC.
- Chicago Skyway (66.67% ownership): A 12.5 km toll road in Chicago, US.
- Warnow Tunnel (100% ownership): A 2.1 km tunnel road in Rostock, Germany.
Since its initial public offering in January 2010 at $0.50 per share, ALX shares peaked at $8 by September 2020, largely due to expansion of its portfolio, stable cash flows, robust dividends, and a shift to in-house management, which reduced external costs.
However, momentum faltered in 2022 after the $3 billion purchase of a 66.67% stake in the Chicago Skyway. This acquisition faced harsh scrutiny from ALX’s principal shareholder, IFM Investors, who described it as “significantly value destructive.” A subsequent capital raise of $2.5 billion to fund the deal caused the share price to plummet by 15% from September 12 to October 10, 2022, resulting in a 28% decline since then.
Recent Challenges
Furthermore, Atlas Arteria has encountered several hurdles, including:
- French Tax Concerns: A proposed annual tax of nearly $200 million affecting the APRR network, as outlined in France’s 2024 budget, poses a risk to profitability.
- US Toll Restrictions: Regulatory bodies have denied toll hikes on the Dulles Greenway, limiting potential revenue growth in a vital market.
Despite these pressures, Atlas Arteria has preserved a consistent annual distribution of 40 cents per share, thereby offering an average dividend yield of 7.1% over the last three years.
IFM’s Increased Stake
Recently, IFM Investors, an infrastructure management company controlled by Australian superannuation funds, has escalated its stake in Atlas Arteria from 29.88% to 32.58%. Under the Corporations Act 2001, surpassing a 20% voting power generally mandates a takeover bid. Nonetheless, IFM has taken advantage of the “creep provision,” allowing shareholders with over 20% ownership to incrementally acquire an additional 3% every six months without invoking a mandatory bid.
Citi’s Prognosis
Citi analysts perceive Atlas Arteria as a potential takeover target, driven by IFM’s increasing influence. The analysts note that “Questions about a potential takeover are likely to re-emerge.” They also expect ALX to perform well in volatile market conditions, appealing to investors seeking safe investments with reliable yields.
Citi maintains a "Buy" rating, projecting a target price of $5.70, based on the appealing approximately 8% dividend yield and anticipated 1-2% dividend growth in the medium term, facilitated by an adjusted free cash flow payout ratio. Below are Citi’s forecasts as of April 23, 2025:
| 2024 | 2025e | 2026e | 2027e | |
|---|---|---|---|---|
| Net profit (A$m) | 275.3 | 188.4 | 243.4 | 261.1 |
| DPS (cents) | 40 | 40 | 40.4 | 40.8 |
| Dividend yield (%) | 8.2 | 8.2 | 8.3 | 8.4 |
Conclusion
While Atlas Arteria may not represent a typical high-growth stock and has experienced a downward trend over the past two years, recent signs of stabilisation—trading above its 200-day moving average for the first time since March 2023—could indicate a potential bottom in the stock’s decline. With an approximate 8% dividend yield, modest growth prospects for dividends, and takeover speculation driven by IFM’s increasing stake, it presents an appealing option for income-focused investors.
