A bigger than expected dividend has Aurizon shares performing well, but are they fully-priced?

Aurizon Ltd (ASX: AZJ) shares are among the better performers in the S&P/ASX 200 Index (ASX: XJO) on Monday after the company’s first-half profit beat consensus estimates, it boosted its interim dividend, and also beefed up its on-market share buyback.

But does that mean the company’s shares are a buy? We’ll get to that later. Firstly to the result.

A solid set of numbers

The rail transport company reported EBITDA of $891 million, up 9% on the same period the previous year, with earnings driven by “higher volumes, a regulatory revenue uplift and disciplined cost control”.

The company also boosted its dividend payout ratio to 90% of underlying net profit, up from a range of 70% to 100% previously, and will pay an interim dividend of 12.5 cents per share, up from 9.2 cents.

The company also said it would extend its on-market share buyback by $100 million, making it now worth up to $250 million.

Managing Director Andrew Harding said it was a solid result.

Today’s results underscore the strength of Aurizon’s two largest business units, Network and Coal and the continued growth of Bulk and Containerised Freight. Revenue growth was driven by regulatory uplift and higher volumes, while disciplined cost control — including the successful execution of last year’s $60 million cost‑out program — further strengthened our position. This strong performance has flowed through to increases in our net profit after tax, free cash flow and earnings per share. We are also making good progress executing against key strategic objectives.

On the outlook, the company maintained its full-year guidance for underlying EBITDA in the range of $1.68 to $1.75 billion, with the full-year dividend now expected to be 22 to 23 cents per share, up from a previous guidance of 19 to 20 cents per share.

The network division was expected to post increased earnings compared with FY25 due to an increase in regulatory revenue, while the coal division was also expected to increase earnings driven by increased volumes and flat unit costs.

Analysts applaud a solid result

Jarden analysts said the result was a strong beat on core earnings per share, coming in 9% above expectations.  

They said the strength in the coal and bulk freight divisions was reassuring, while containerised freight appeared to still be a drag.

The Jarden team said, “Coal, Bulk and Network beats should drive share price strength”.

RBC Capital Markets analysts said the result was positive, with the interim dividend comfortably beating consensus estimates of 9.7/9.8 cents per share.

Aurizon shares were 5.2% higher in early trade on Monday at $3.77, after briefly trading as high as $3.92, which was a 12-month high.

Both analysts think Aurizon is fully priced at current levels, with Jarden having a price target of $3.45 on the shares and RBC a $3.40 target.

Aurizon was valued at $6.15 billion at the close of trade on Friday.

The post A bigger than expected dividend has Aurizon shares performing well, but are they fully-priced? appeared first on The Motley Fool Australia.

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