Interactive Investor

IAG sets sights on dividend return

The boss of IAG is upbeat about the BA owner’s medium-term prospects, but when will shareholders see the return of dividend payments?

21st November 2023 15:21

Graeme Evans from interactive investor

One of the last FTSE 100 companies still to resume dividend payments following the pandemic today reiterated its commitment to shareholder distributions.

However, there was no timetable from the British Airways, Aer Lingus and Iberia owner International Consolidated Airlines Group SA (LSE:IAG) about when this might happen.

The company told analysts and investors at a capital markets day that it is committed to dividends “once our balance sheet and investment plans are secure”.

IAG withdrew a previously announced dividend in April 2020 and has been further thwarted by the industry’s disjointed recovery from the pandemic.

Rolls-Royce Holdings (LSE:RR.), which hosts its own capital markets day on 28 November, is the other FTSE 100 company still to resume dividends. 

IAG started making dividend payments in 2015 and by the end of 2019 had returned almost 4.1 billion euros (£3.6 billion) to shareholders.

This included two 500 million euros (£436.7 million) buy-backs in 2017 and 2018 equating to almost 7% of shares, plus a special dividend of 695 million euros (£607 million).

The last full-year dividend declaration amounted to 17 euro cents (14.85p), which together with the interim award made a payout ratio of 26% of 2019’s pre-exceptional post-tax profit.

Barriers to an IAG dividend since the pandemic have included loan agreements preventing the distribution of reserves from the group’s operating companies to the main group.

In today’s briefing, IAG pledged a ratio of net debt to earnings of less than 1.8 times over the economic cycle, compared with leverage of 3.1 times in the 2022 financial year.

This had improved to 1.4 times at the end of September —  the same as the 2019 year — after IAG reduced net debt by 3.1 billion euros (£2.7 billion) year-on-year to eight billion euros (£7 billion).

Other targets at today’s London presentation include an operating margin of 12%-15%, which compares with 5.3% in 2022 and 12.7% in the year before the pandemic.

It is also looking for 1.5 billion euros (£1.3 billion) in operating profit from IAG’s Spanish businesses and for IAG’s loyalty division to deliver sustainable year-round cash flow.

Chief executive Luis Gallego said today: “Our transformation and investment plans will drive a step change across our businesses, delivering efficiencies and a market-leading customer experience.

“Executing our strategy will enable us to deliver sustainable growth and returns for our shareholders.”

The shares are up by about a fifth this year, including a rise of 10% in the past month. However, today’s update failed to inspire further buying as IAG dropped 6.3p to 157.3p.

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