Investors in easyJet (LSE:EZJ) shares were understandably thrilled earlier this year as dividends finally returned. After being cut in the fallout of the 2020 pandemic, it’s been four years since shareholders have enjoyed some passive income from the short-haul airliner.
And while the yield currently sits at a tiny 0.85%, it could surge if management’s able to restore shareholder payouts to pre-pandemic levels.
So what do the dividend forecasts say? Let’s take a look at the current predictions between now and March 2029.
Recovery may take a while
In March this year, shareholders received a dividend of 4.5p per share. That’s certainly better than zero. But it’s not even close to the 43.9p received in early 2020 before the pandemic came in like a wreaking ball. If shareholder payouts were to suddenly return to pre-pandemic levels, at today’s share price, easyJet shares would yield roughly 8.3%.
That certainly sounds enticing. But how realistic is this prospect? Looking at the latest analyst predictions, it seems shareholders will likely have to wait quite a while.
| Year | Dividend Per Share | Dividend Growth | Dividend Yield |
| 2024 | 4.5p | – | 0.85% |
| 2025 | 5.85p | 30% | 1.11% |
| 2026 | 7.02p | 20% | 1.33% |
| 2027 | 7.72p | 9.9% | 1.46% |
| 2028 | 8.49p | 9.9% | 1.61% |
| 2029 | 9.34p | 10% | 1.77% |
To cover the cost of most of its dividend, easyJet spent £34m. So to restore the dividend per share back to 43.9p, the company will need to generate around £312m in excess earnings. That’s almost double the £174m paid out in the pre-pandemic era. What’s going on?
With all the disruption to the travel sector, easyJet had little choice but to issue new shares in several rounds of capital raising. Consequently, the group’s number of shares outstanding has almost doubled over the last four years, from 472 million to 758 million, as of March this year.
With that in mind, it’s not surprising to see forecasts struggle to break past 10p even five years from now.
Should I buy the shares today?
The rebound in passenger volumes across the airline industry has been a welcome tailwind for companies like easyJet. Prices are starting to soften as more competitors bounce back and ramp up operations, boosting supply. But, easyJet’s package holiday segment’s seemingly offsetting this negative impact, on track to deliver £170m of pre-tax profits by the end of its 2024 fiscal year.
That certainly bodes well for management hitting its £1bn pre-tax profit target. And assuming this threshold’s reached, a £312m dividend could be affordable. Yet, looking at the forecasts, it seems analysts are sceptical.
This lack of enthusiasm may present a buying opportunity for contrarian investors. But it’s not entirely unfounded. Higher interest rates are problematic for a debt-heavy balance sheet, as is fuel price inflation. Considering easyJet’s pricing power’s quite limited, margins are likely to come under pressure.
Personally, I think there are far better income opportunities out there. So I’m not planning on adding any easyJet shares to my portfolio today.
This post was originally published on Motley Fool
