3 High-Flying Mexican Stocks
09/06/2012 10:45 am EST
Most investors look to Canada for solid dividend stocks, but below are a trio of companies that have strong market positions in a growing sector, notes Rudy Martin of Latin Stock Investing.
The Mexican government in the 1990s enacted laws to promote the expansion, development, and modernization of that nation's airport infrastructure by encouraging investment and competition.
The laws allow private companies to have franchises to manage and operate airports and receive fees for aeronautical services, which are charged to the airlines using their facilities, including:
- Passenger charges
- Landing charges
- Aircraft parking, boarding, and unloading charges
- Aircraft long-term parking charges
- Passenger walkway charges
- Airport security charges
In addition, the firms that manage and operate Mexico’s airports also achieve revenue by providing retail services, including restaurants, shops, banks, and other stores available for passengers, visitors, airport workers, and airline employees. They also provide passengers and clients additional commercial services, such as parking facilities, car rental, and advertising.
They also earn revenues from charging access and other fees from third-party providers of complementary services, such as baggage handling services, catering services, aircraft maintenance and repair, and fuel at airports. This also includes fees for cargo handling and permanent ground transportation, such as taxis.
Shares of three Mexican airport management firms are available to US investors.
Grupo Aeroportuario del Sureste SAB de CV (ASR) manages nine airports in Mexico’s southeast municipalities of Cancun, Cozumel, Merida, Huatulco, Oaxaca, Veracruz, Villahermosa, Tapachula, and Minatitlan. In addition to management of facilities used by airlines and passengers, ASR also derives revenue from non-aeronautical activities, such as the leasing of space to restaurants, retailers, and service providers.
Grupo Aeroportuario del Pacifico SAB de CV (PAC) manages 12 airports serving metropolitan Guadalajara and Tijuana, in addition to tourist destinations Puerto Vallarta, Los Cabos, La Paz, Manzanillo, and a number of mid-sized cities. In the most recent year, the firm’s airports handled approximately 28.2 million terminal passengers, including many on international flights.
Grupo Aeroportuario del Centro Norte SAB de CV (OMAB) participates in the operation and management of 13 airports located in nine states in the Central and northern regions of Mexico, including Acapulco, Ciudad Juarez, Culiacan, Chihuahua, Durango, Mazatlan, Monterrey, Reynosa, San Luis Potosi, Tampico, Torreon, Zacatecas, and Zihuatanejo.
In addition, the firm helps manage a five-star hotel and approximately 5,000 square meters of commercial space inside Terminal 2 of Mexico City International Airport. OMAB also offers services and facilities for the handling, storage, and logistics of air freight in strategically located terminals. The firm operates cargo terminals in the airports of Monterrey, Chihuahua, and Ciudad Juárez.
A component of the Latin Stock Investing Model Dividend Stock Portfolio, OMAB’s current indicated dividend yield of 6.8% readily surpasses the 3.1% dividend return of ASR as well as PAC’s 3.7% current indicated cash dividend yield. In slightly less than a year after its August 10, 2011 debut in the Dividend Portfolio, the airport operator has achieved a respectable 20.8% total return.
With difficult, mountainous terrain throughout the region and a lack of a developed network of roadways comparable to the US interstate highway system, the prospects for increases in Latin American air travel seem bright. Growing populations with expanding middle classes should keep the flights full and the airports busy. Revenue passenger kilometers of flights in Latin America grew 10.2% in 2011, significantly more than any other major region on earth.
The region’s growth potential in air travel is readily apparent in that in the major Latin countries, the number of annual flights per capita recently stood in ranges of 0.2 to 0.4—miniscule fractions of the frequency of the most developed nations. The United States averages 2.2 annual flights per capita, meaning that a huge potential traffic exists for the Latin American air transport industry.