Aurizon Holdings (AZJ) – Yield appeal

Aurizon Holdings is a freight business in Australia. It operates through network, coal, bulk and other segments, serving mining, metal, industrial, and agricultural customers. The company operates and manages the Central Queensland Coal Network that consists of 2,670km of tracks; and the South Australia and Northern Territory Network that consists of 2,100km of tracks. The company was formerly known as QR National and changed its name to Aurizon Holdings in December 2012. Aurizon was incorporated in 2010 and is headquartered in Fortitude Valley, Australia.

Aurizon Holdings posted a first-half FY26 net profit around 10% higher than market expectations, driven by lower-than-forecast unit costs and higher-than-anticipated yields from its above-rail coal operations, and launched another share buyback valued at $100 million.

The key positive from the result for Ord Minnett, however, was an increase in its dividend payout ratio to 90% from 80%, a level the company aims to maintain into the future. Aurizon reiterated guidance for FY26 group operating earnings (EBITDA) of $1.68–1.75 billion, versus market expectation near the midpoint at $1.71 billion, with EBITDA from its network, coal and bulk divisions all “expected to be higher than FY25”.

Dividend guidance for FY26 was upgraded to $0.22–0.23 per share from $0.19–0.20. We highlight that incorporating the new dividend guidance and the $250 million in share buybacks already launched in the current fiscal year shows Aurizon is offering a total distribution yield, i.e.dividends plus share buybacks, of circa 7–8% in FY26. For FY27, incorporating Ord Minnett’s EPS estimates, a 90% dividend payout ratio, and our forecast for another $250 million share buyback given Aurizon has sufficient balance sheet capacity, the total distribution yield would rise to around 9–10%.

Post the result, we raised our EPS estimates by 2.7%, 3.5% and 0.9% for FY26, FY27 and FY28, respectively. These earnings upgrades led us to increase our target price on Aurizon to $3.50 from $3.10, although we maintained our Hold recommendation on valuation grounds.

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