Should I buy easyJet shares for the returning dividend?
The easyJet (LSE: EZJ) share price continues to slump. Worries over the impact of high inflation are still pulling the budget airline lower. As I type, it’s down 43% since the start of 2022.
Yet many investors believe the former FTSE 100 company is now a brilliant bargain stock to buy. Should I buy easyJet shares as the travel sector steadily improves? And should I buy the business for next year’s dividend?
Dividends to return?
Yes, you read that right. It’s true that easyJet hasn’t been a reliable dividend stock for years. But City brokers think all this is about to change.
The low-cost airline was slashing annual dividends in the run-up to the pandemic. In the financial year to September 2019, it cut the full-year reward to 43.9p per share from 58.6p a year earlier as high fuel and currency costs hit profits.
The business then axed shareholder payouts entirely in fiscal 2020. And isn’t expected to pay a dividend this year either. However, easyJet’s expected to get things rolling again with a 4.5p per share reward for the new year beginning in October.
A fast-growing market
With easyJet’s share price at 339p per share the dividend yield sits at a handy-if-unspectacular 1.3%. To put this in perspective, the FTSE 100 average sits just below 4%.
But that alone isn’t necessarily enough to rule out easyJet as an attractive future dividend stock. Shareholder payouts could grow strongly as the civil aviation sector steadily improves and profits rebound. This could make the airline a great passive income stock to buy.
There’s no disputing that the budget airline sector is tipped for impressive growth over the long term. And as one of the industry’s leading players, easyJet could be in one of best seats to ride this opportunity.
Analysts at Allied Market Research, for example, think the global low-cost airline sector will grow to be worth $440.5bn by 2030. That represents a compound annual growth rate of 10.4% over the next eight years.
A high-risk stock
That said, easyJet isn’t a future dividend star that I’m prepared to buy right now.
I’m actually less than impressed by the company’s ability to ride the travel industry rebound. It swung to a pre-tax loss of £114m for the three months to June, latest financials showed. Flight activity has rebounded but staffing issues have weighed heavily (it had to cancel around 10,000 flights over the summer).
A shortage of cabin and ground crew remains a big threat to airlines, including easyJet. And it’s a problem that could persist due to post-Brexit immigration rules. So does the prospect of another surge in oil prices that could shove up fuel costs.
There’s also a danger that ticket sales could dry up again as the cost-of-living crisis hits consumer spending. And over the longer term, revenues and margins at easyJet could suffer as competition in this fast-growing industry intensifies.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.