Investors have been hoping that easyJet (LSE:EZJ) shares would soon begin paying dividends again. City forecasters were also predicting that the airline was about to relaunch its shareholder payout policy.
This week, the FTSE 250 firm confirmed what the market was largely expecting and announced plans to pay dividends once more from this year. The business is in a position of strength following the travel sector’s sustained recovery.
The question, of course, is whether this good news is enough to make the company a ‘buy’ right now. Here I’ll reveal whether or not I’ll add easyJet shares to my own portfolio.
The company’s full-year trading update on Thursday (12 October) rubber-stamped its impressive post-pandemic recovery. The low-cost airline printed record fourth-quarter pre-tax profit, and declared that headline profit would range £440m-£460m for the 12 months to September. It had recorded a £178m loss the year before.
Despite the cost-of-living crisis, trading at easyJet has remained impressively strong. Passenger numbers grew 8% in the July-September quarter amid rising capacity, while the load factor improved to 92%.
With the balance sheet significantly mended — it had net cash of around £40m as of September versus net debt of £670m a year earlier — the firm said it will pay a dividend equating to 10% of financial 2023’s post-tax profits.
It added that it plans to increase the percentage to 20% of profits for the current year.
In a further sign of the company’s bullishness, easyJet announced its intention to buy 157 new aircraft from Airbus between financial 2029 and 2034. If approved by shareholders, this will push its total order book to 315 planes.
The travel titan is clearly in a good place right now, and things could get steadily better as Europe’s budget airline sector steadily increases.
However, I still have reservations about buying easyJet shares for my portfolio. With economic conditions in its European marketplaces steadily worsening, and interest rates tipped to remain higher than usual through the medium term, demand for its tickets is looking less robust ahead.
Okay, easyJet’s position at the cheaper end of the market might see it perform better than more expensive operators, but luxury purchases like holidays are still one of the first things on the chopping block during tough times.
easyJet may also struggle to keep filling its planes and building profit margins due to the high levels of competition it faces. In fact, ambitious fleet and route expansion plans by the likes of Ryanair and Wizz Air pose a significant long-term danger to the company.
At the same time, airlines’ earnings are coming under increasing threat from rising oil prices. While easyJet hedges against the risk of increasing fuel costs it isn’t immune to these pressures. And as supply worries mount, chances are high of crude values barging through the $100 per barrel marker in the near future.
Investors will be hoping that easyJet’s dividends steadily grow from this point on. But all things considered, I’m not convinced. So I’d rather buy other FTSE 100 and FTSE 250 shares to make a second income today.
The post Should I buy easyJet shares to make a second income? appeared first on The Motley Fool UK.
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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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.
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