The fund manager, L1 Capital, has picked out an S&P/ASX 200 Index (ASX: XJO) dividend giant as an opportunity to buy and own for a potential recovery. The stock in question is rail infrastructure business Aurizon Holdings Ltd (ASX: AZJ).

L1 Capital has been looking for infrastructure opportunities in the current environment of higher interest rates and lower valuation periods.

The fund manager likes regulated monopoly assets with significant barriers to entry, which generate strong cash flow, have long-term demand growth, and have strong dividend profiles.

Important infrastructure assets

L1 described Aurizon as a national rail operator with more than 5,000km of network assets and the largest haulage operations in Australia.

The ASX 200 dividend giant moves coal, iron ore, agricultural freight and other goods across the nation. Each year, the business transports more than 250 million tonnes of Australian commodities. Aurizon says it owns and operates one of the world's largest coal rail networks, linking approximately 50 mines with three major ports in Queensland.

L1 said that a majority of the Aurizon valuation is derived from regulated "below-rail" network infrastructure assets. In other words, the track infrastructure is the most important asset, rather than assets that are above-rail (on the tracks), such as trains.

Why like this ASX 200 dividend giant?

As the chart below shows, the Aurizon share price has declined more than 40% over the last five years and 15% from its 52-week high in April 2024.

L1 believes Aurizon's current investment for growth is weighing on the cash generation ability of the company, but this "will revert in the coming years".

The fund manager thinks there is scope for material capital returns through dividends and share buybacks.

L1 is forecasting that the ASX 200 dividend giant can roughly double its overall shareholder payments (dividends and buybacks) in FY25 compared to FY24, with increases projected in FY26 and FY27.

FY25 outlook

When Aurizon announced its FY24 result, it gave some commentary about its guidance for the 2025 financial year.

The infrastructure business said it expects to see earnings growth, with operating profit (EBITDA) expected to be between $1.66 billion and $1.74 billion.

Network EBITDA is expected to be higher than FY24, with an increase in regulated revenue, partially offset by lower external construction works. It said no volume-related over-recovery has been assumed.

Coal EBITDA is expected to be "broadly consistent" with FY24, with higher volumes offset by the normalisation of its yield and higher traincrew and maintenance costs.

Bulk EBITDA is expected to be higher than FY24, driven by volume growth in bulk central, more than offsetting an expected volume decline in bulk west.

Overall, it seems things are looking positive for the ASX 200 dividend giant to deliver higher profits and payouts.