ASX Dividend Stocks: A potential takeover candidate (with an ~8% yield)

I'm on a mission to spotlight some of the ASX's most compelling dividend-paying stocks. The aim is to provide readers with the key data and forecasts to make more informed decisions. Today, we're diving into Atlas Arteria, one of the world's largest toll road operators.

Atlas Arteria (ASX: ALX) is a global owner, operator, and developer of toll roads, with a portfolio of five toll road assets in France, Germany, and the United States. The key assets include:

• APRR (30.8% ownership): A 1,890 km motorway network in eastern France.

• ADELAC (30.8% ownership): A 20 km commuter road connecting France to Switzerland adjacent to APRR.

• Dulles Greenway (100% ownership): A 22 km toll road in Washington, DC.

• Chicago Skyway (66.67% ownership): A 12.5 km toll road in Chicago, US.

• Warnow Tunnel (100% ownership): A 2.1 km toll road in Rostock, Germany.

From its IPO in January 2010 at $0.50 per share, ALX shares soared to a high of $8 by September 2020. This impressive run was driven by portfolio expansion, stable cash flows, a strong dividend, and bringing management in-house, reducing external fees.

However, momentum stalled in 2022 following the $3 billion acquisition of a 66.67% stake in the Chicago Skyway. The deal drew sharp criticism from ALX's largest shareholder, IFM Investors, who labeled it “significantly value destructive.” A $2.5 billion capital raise to fund the acquisition triggered a 15% share price drop between September 12 and October 10, 2022. Since then, ALX shares have declined by around 28%

Atlas Arteria five-year price chart (Source: Market Index)

The company also faced headwinds, including:

• French Tax Challenges: A proposed annual tax of nearly $200 million on the APRR motorway network, outlined in France’s 2024 budget, threatened earnings.

• US Toll Restrictions: Regulators rejected toll increases on the Dulles Greenway, capping revenue growth in a key market.

Despite these challenges, Atlas Arteria has maintained a steady annual distribution of 40 cents per share, delivering an average dividend yield of 7.1% over the past three years.

IFM lifts stake

IFM Investors, a global infrastructure manager owned by Australian superannuation funds, recently increased its stake in Atlas Arteria from 29.88% to 32.58%.

Under the Corporations Act 2001, exceeding 20% voting power typically triggers a mandatory takeover offer, but IFM has utilised the “creep provision,” allowing shareholders with over 20% ownership to acquire an additional 3% every six months without launching a bid.

Citi's outlook

Citi analysts see Atlas Arteria as a potential takeover candidate, driven by IFM’s growing influence. They note, “Questions around a potential takeover would likely be raised again.” Citi also believes ALX could outperform in volatile markets, as investors seek safe havens with strong yields.

Citi retains a Buy rating with a $5.70 target price, citing the stock’s attractive ~8% dividend yield and potential for 1-2% dividend growth in the medium term, driven by a revised free cash flow payout ratio. Below are Citi’s key forecasts as of April 23, 2025:

Source: Citi (April 2025)

The bottom line

Atlas Arteria may not be a high-flying growth stock, and its share price has trended lower over the past two years. However, recent stabilisation — trading above its 200-day moving average for the first time since March 2023 — signals potential floor in the share price's decline. The stock’s ~8% dividend yield, modest dividend growth prospects, and takeover speculation driven by IFM’s growing stake make it an intriguing opportunity for income-focused investors.