'Turbocharged' IAG rides out airline storms

BA owner International Airlines Group continues to impress, helped by a "turbocharged" dividend yield.

The British Airways parent International Consolidated Airlines Group (LSE:IAG) has produced an outstanding performance, which is particularly impressive given the difficulties being faced elsewhere in the airline industry.

The company has, for some years, been concentrating on driving its business by way of additional airline capacity and a sharp focus on costs and productivity, whilst continuing to provide a diversified portfolio ranging from budget to high end experiences.

One such example of its progress is the dividend. Where British Airways had been unable to pay a dividend for some considerable time, the combined group began payments in 2015 and today's announcement of a special dividend will turbocharge an already punchy yield of 4.1%. In the meantime, the ongoing share buyback programme is both supportive to the share price as well as demonstrating management confidence in prospects.

Elsewhere within the numbers, adjusted earnings per share have spiked by over 15%, passenger revenues are up 6.2% and overall revenues are ahead by nearly 7%. Even without exceptional items, operating profit is healthy and post-tax profit is up 11.2%.

The company is currently well placed in terms of geographical reach and both short and long-haul destinations remain in rude health, to the extent that IAG has also provided positive outlook comments.

Flies in the ointment are few and far between. Net debt is containable but has risen 7.7%, whilst the company itself has pointed to the headwinds it has been facing with regard to adverse currency movements, Air Traffic Control disruption and a spike in oil prices.

Indeed, as an investment, airlines have had a chequered past. Quite apart from factors within their control, freak weather conditions, virus outbreaks, bouts of terrorism and general economic conditions have all weighed heavily at different times.

For now, though, International Consolidated Airlines is cruising. The numbers have been warmly welcomed by the market, where the initial share price jump will offset the 0.5% decline over the last year, which compares to a 1.7% drop for the wider FTSE 100. The results should assuage lingering bears of the stock, with the general market view of the shares as a buy most likely to remain intact.