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In this high-tech age that we live in, those ASX shares perceived to represent “boring” businesses can be unfairly overlooked.
According to Switzer Financial Group director Paul Rickard, Aurizon Holdings Limited (ASX: AZJ) is a prime example of a company with this perception in the market.
“Boring is, I guess, any business involved in rail, haulage, logistics and coal,” he told Switzer TV Investing.
“But for many investors, they’ve gone to Aurizon for the income — because it’s been a high yielder.”
Share price heavily discounted after dividend announcement
On Monday, the market savaged Aurizon shares after the company revealed its full-year financials.
Investors were disturbed that a stock well-known for its yield was cutting its dividend by 24%. The Aurizon share price plummeted 6% that morning before recovering somewhat in the afternoon.
Rickard feels like that was an overreaction.
“It did cut its dividend, but that was, by and large, expected,” he said.
“It was actually a little bit better than analyst forecasts — but it was still a dividend cut.”
The sell-off, he added, has created “some value” for those dividend hunters willing to buy in for about a 5.6% yield next year.
“The market probably misunderstood what was coming.”
Taking advantage of the market’s misjudgment
Aurizon has two main businesses. One is owning and maintaining a network of train tracks in Queensland, the other is a haulage business that has many interests outside of that state.
While much of its business relies on transporting coal, Rickard reckons Aurizon is shifting away from that to boost the stock’s ESG attractiveness.
“It’s actually diving a part of what’s called East Coast Rail, which is its Hunter Valley thermal coal haulage business.”
The track business, which brings in about 55% of its revenue, can be considered an infrastructure play.
The Aurizon share price closed Wednesday at $3.89.
Aurizon isn’t a stock Rickard would actively chase, but Monday’s dip makes it appealing right at the moment.
“It’s an attractive yield… Markets have probably misjudged what they’re being told to create [buying] opportunities.”
It usually trades within a tight range, and is at the lower side of that spectrum.
“I think at $3.80 to $3.90 it’s reasonable for a dividend payer,” said Rickard.
“I wouldn’t go too much above $4, and I’m not expecting a huge [capital] gain. But I think you can quantify the risks.”