Since the beginning of 2024, high dividend assets have continuously attracted capitalShandong Expressway and Guangdong Expressway A have maintained high dividend payout ratios over the years, with dividend yields significantly exceeding risk-free ratesFurthermore, ongoing expansion and renovation projects are actively advancing, supporting continued growth in performance for the future.

Both expressway stocks have hit record highs recently.

On December 16, 2024, Guangdong Expressway A reached a historical peak, with only two and a half months separating it from its last recordIn the following five trading days, it created new highs on four separate occasionsShandong Expressway, its counterpart, also followed suit by achieving a historical high on December 17, again with just two and a half months passing since its previous high.

The respective historical peak prices for Shandong Expressway and Guangdong Expressway A stood at 10.25 yuan per share and 13.51 yuan per share, reflecting increases of 54.83% and 68.03% since the beginning of 2024, while the Shanghai Composite Index has only risen by 12.65% in the same period

If we look back to the lows during the pandemic in 2020, the maximum increase for these stocks to date has been 242.81% and 192.42% respectively.

As of the market close on December 23, the total market capitalization of Shandong Expressway and Guangdong Expressway A was 48.1 billion yuan and 27.852 billion yuan respectivelyBoth companies are primarily engaged in highway operations, which do not encompass hot speculative concepts yet they have significantly outperformed the market and continuously hit new historical highsWhat drives this remarkable growth in stock prices?

High Dividend Stocks on the Rise

Since 2024, high dividend character highway stocks have caught the eye of institutional investors.

Particularly notable is the resurgence in the A-share market in late September 2024, where declining yields from bonds and other fixed-income assets have prompted a shift in substantial capital towards equity assets

• U.S. Debt Soars to $50 Trillion
• The MSTR Strategy Has Failed
• 2025: Future Trends in China's Retail Sector
• The Future Direction of Wearable Device Upgrades
• Morning Insights FM-Radio | January 3, 2025

This influx of capital has seen both the A-share and Hong Kong stock markets benefit from increased investment.

Among these newly allocated funds, whether from large institutional investors who previously favored bonds or individual investors inclined towards fixed-income bank financial products, their inherent risk appetites guide them towards relatively lower-risk products.

In particular, high dividend assets, which boast substantial and stable dividends, are akin to “bond-like assets” within the stock marketIn this low-interest-rate environment, such high dividend assets continue to attract a stream of capital flowing out of fixed-income products, enhancing their liquidity.

Highways are exemplary of these assetsAs critical infrastructure, they hold natural monopoly and exclusivity

Once completed and operational, they can steadily collect tolls over the long term, generating consistent cash flowThis reliable cash flow provides highway companies with a dependable source of income, allowing them to consistently reward shareholders with significant dividends.

According to Shanghai Securities, the expressway sector features numerous high-quality targets characterized by stable operations and dividends, which promise relatively consistent returns over the medium to long termAdditionally, during times of diminished market risk appetite, companies backed by net assets offer robust defensive attributesMoreover, as the expressway industry enters a mature and stable phase, the peak era of corporate expansion investments has passed, leaving annually ample cash available for dividends, which many companies have increasingly allocated towards dividends in recent years.

High Dividend Assets

Shandong Expressway and Guangdong Expressway A, both now achieving new historical highs, stand out as high dividend representatives in the expressway sector.

In 2020, Shandong Expressway decided to raise its dividend payout ratio from 36.12% in 2019 to 60.07%. In July of the same year, the company announced a commitment stating that, "subject to satisfying cash dividend conditions, over the next five years, the annual cash dividend distributed will not be less than 60% of the profit attributed to the parent company in the current year's consolidated financial statements."

In 2021, despite a 35% decline in profits due to the pandemic, Shandong Expressway increased the dividend payout ratio for 2020 to 89%, ensuring that the per-share dividend did not drop

From 2020 to 2023, the per-share dividends remained stable and incremented slightly, recorded at 0.38 yuan, 0.38 yuan, 0.4 yuan, and 0.4 yuan respectivelyThe dividend payout ratios during these years were 63.05%, 63.52%, and 61.66%. The company expressed its commitment to effectively returning value to its investors, maintaining the stability and consistency of its dividends.

Guangdong Expressway A has also consistently maintained high dividend distributionsSince its listing in 1996, the company has implemented cash dividends annuallyStarting from 2016, it raised the annual cash dividend payout ratio to 70% of the profit attributable to the parent companyCumulatively, the company has distributed 10.162 billion yuan in dividends since its foundingFrom 2021 to 2023, its dividend payout ratios were 70.09%, 70.11%, and 70% respectively.

Guangdong Expressway A has also stipulated profit distribution mechanisms in its Articles of Association and establishes a plan every three years, clarifying the decision-making process and adjustment principles regarding its profit distribution policies.

Despite reaching historical highs, both expressway stocks still offer attractive dividend yields

For 2023, Shandong Expressway and Guangdong Expressway A have cash dividends of 2.033 billion yuan and 1.144 billion yuan respectively, leading to dividend yields of 4.23% and 4.11% based on market capitalizations at the close of December 23.

Both companies are constituents of the CSI Dividend IndexData from Guohai Securities indicates that historically, when the dividend yield of the CSI Dividend stocks divided by the yield of 10-year government bonds exceeds 1.5 times, the index tends to represent favorable investment scenariosConversely, when it falls below 1, the risks increaseBenefiting from the swift decline in treasury yields, as of December 7, this ratio further increased to 2.55 times, indicating a high allocation value for high dividend assets represented by the CSI Dividend Index.

Policy incentives are likely to further enhance expectations for future dividends from these two expressway stocks.

On December 17, 2024, the State Council announced new policies, emphasizing "strengthening supervision on cash dividends of listed companies, increasing incentives for companies with quality dividends, and enhancing the stability, continuity, and predictability of dividends," further expected to uplift the long-term dividend levels and stability of listed companies and dividend assets

This recent expectation has been reinforced again.

On the same day, China Securities Clearing Corporation announced a 50% reduction in fees for dividend payments on A-shares in the Shanghai and Shenzhen marketsUnder multiple favorable conditions, it is anticipated that the willingness of listed companies to declare dividends will continue to strengthen.

Driving Growth through Expansion and Renovation

In recent years, Shandong Expressway has maintained robust revenue growth, with year-over-year growth rates of 24.61%, 14.09%, and 18.62% from 2021 to 2023, continuing to grow by 10.94% in the first three quarters of 2024. Though profitability has experienced fluctuations, it remains generally stable; in 2023, the net profit excluding non-recurring items grew by 18.17% year-over-year

While the first three quarters of 2024 saw a decline of 7.51%, the third quarter displayed a positive turnaround with a growth of 6.99%.

Guangdong Expressway A also reported revenue and net profit growth of 17.04% and 28.01% respectively in 2023. Despite a revenue drop of 5.03% in the first three quarters of 2024, net profit saw a slight increase of 0.01%. The third quarter net profits and net profit excluding non-recurring items grew by 6.45% and 5.21% respectively, with several brokerages noting results that exceed market expectations.

Renovation and expansion have become vital growth mechanisms for expressway stocks.

For Shandong Expressway, the core asset renovation projects are nearing completion, post-operation expected to contribute additional volume

For the Beijing-Taipei Expressway, the restoration of the Deqi section was completed and opened to traffic in mid-July 2021; the Jitai section was opened in October 2022; as of the end of September 2024, foundational work on the Qiji section is 84% complete, while roadway construction is 60% complete, and bridge and culvert works are 83% completeFor the Jikai Expressway, as of the end of September 2024, foundation work is 99.99% complete, roadway construction is 98.22% complete, bridge and culvert works are 98.69% complete, building works are 93.01% complete, traffic safety projects are 92.37% complete, and greening is 85.52% complete, with electromechanical projects reaching 72.15% completion.

Additionally, Shandong Expressway's Weilai Highway expansion has passed board review, and they have newly won the concession project for the G220 Dongshen Line from Nanfang Village in Dongying to Binhai Boundary

The core asset renovations are gradually concluding, and once completed, it is anticipated that passenger volumes will rise, rates will increase, and tolling periods extended, leading to a potential uplift in profit central.

Cinda Securities has issued a report stating that Shandong Expressway, as one of the leaders in the national expressway sector, benefits from stable cash flow contributions from high-quality assets both within and outside of Shandong provinceAs the core asset renovations approach completion, it is expected to catalyze an increase in profit central, making the company’s long-term development and favorable shareholder dividends promising.

Guangdong Expressway A is also making progress with its expansion projectsBy mid-2024, the company had participated in renovation works for several expressways, including the Jiangzhong Expressway, Huyin Expressway, Jingzhu Expressway, and Guangao Expressway, and is actively preparing for renovations on the Guanghui Expressway

According to estimates made by Xingye Securities, the total investment for these renovation projects is approximately 15.425 billion yuan, excluding the costs borne by local governmentsThe Guangzhou-Zhuhai company alone is responsible for about 13 billion yuan, with the capital accounting for about 35% of the total estimated investmentGuangdong Expressway A is expected to contribute around 3.414 billion yuan as its capital, while funding for the project aside from capital will be secured through bank loansIn the first half of 2024, approximately 476 million yuan was invested, cumulative investments reaching 2.125 billion yuan, marking the project progress at 15.47%. The internal rate of return on this project has been calculated at 5.75%.

According to a report by China Merchants Securities (CMS), Guangdong Expressway A continues to benefit from regional economic growth and increased traffic volumes and toll revenue resulting from initiatives like core asset renovations