Shares of British Airways owner International Consolidated Airlines Group (LSE: IAG) have surged this year, boosted by strong trading and the company’s decision to restart dividend payments.
Demand for transatlantic flights and capacity constraints within the industry have helped IAG to rebuild its profits and repay debt quicker than expected. Shareholders are set to reap the reward, with some potentially attractive cash payouts expected over the next couple of years.
Here are the latest consensus forecasts from City analysts for IAG dividends:
| Year | Dividend per share (€) | Dividend per share (p) | Dividend Growth | Dividend yield |
| 2024 | 0.073 | 6.1 | n/a | 2.9% |
| 2025 | 0.099 | 8.3 | +36% | 3.9% |
| 2026 | 0.102 | 8.5 | +2.5% | 4.0% |
Of course, it’s always important to remember that forecasts are uncertain and can change. IAG’s dividends are also declared in euros, so they can be affected by exchange rate risk too. Even so, based on what we know today, it seems that the airline group’s dividend yield could rise to almost 4% next year. That’s above the current FTSE 100 average yield of 3.6%.
Here’s my view on the UK’s largest airline business.
A good starting point
IAG looks in decent shape to me at the moment. In its half-year results, CEO Luis Gallego reported “strong demand for travel”, particularly on the group’s core transatlantic routes to the US and Latin America.
Profitability has certainly been strong. The group generated an operating profit margin of 11.5% over the 12 months to 30 June. That’s double the 5.9% earned by easyJet over the same period, for example.
This improved profitability has helped IAG repay borrowings. Net debt fell by a third to €6.4bn during the first half of the year. That looks a comfortable level to me, based on this year’s forecast net profit of €2.5bn.
Should I buy IAG shares today?
I’m impressed by IAG’s progress over the last couple of years. But I can see a few clouds on the horizon. Airlines worldwide are suffering from problems securing new aircraft and parts for existing planes.
British Airways recently admitted it was planning to cancel hundreds of long-haul flights this winter due to shortages of “engines and parts”. The shortages mainly relate to Rolls-Royce engines fitted to the airline’s Boeing 787 aircraft.
Even before this news, British Airways was already struggling to meet punctuality targets. A Financial Times report in October suggested cancellations and delays to BA flights from Heathrow have doubled since the pandemic – far worse than many other airlines.
I suspect passengers have flocked to British Airways because they’ve had little choice. The airline is one of the major operators on the London-US route, and many corporate travellers will use it by default.
Investors looking for reliable dividends might also want to remember IAG’s patchy record in this regard. The company has only made payouts in six out of the 13 years since its 2011 listing.
Broker forecasts suggest earnings growth will continue in 2025, but at a slower rate of 7%. On balance, I’m struggling to get excited by the idea of buying IAG shares for dividends so I reckon I’ve better choices for income elsewhere.
This post was originally published on Motley Fool
