A positive outlook for both the short- and long-haul air travel segments makes me extremely bullish on International Consolidated Airlines Group (LSE: IAG).
As the boffins over at UBS recently noted, a strong European economic backcloth bodes extremely well for the continent’s airlines in terms of both passenger and freight movements. The bank predicts that the short-range market will subsequently see traveller numbers rise between 4% and 5% in 2018, while traffic across the long-haul market is predicted to jump around 7%.
And UBS noted that total passenger growth in 2018 could surpass last year’s 7% growth rate “given that global GDP is expected to accelerate.”
IAG of course has splendid access to the transatlantic route mainly through its flagship carriers British Airways and Iberia, and to the low budget European market via the likes of Aer Lingus and Vueling.
And the FTSE 100 business, like most of its rivals, continues to expand its fleet across both of these segments, as well as boosting the number of routes it operates, to capitalise on the steady build in global traveller numbers. Group capacity (measured in available seat kilometres) jumped 3.5% year-on-year in February.
Soaring yields
These measures are putting IAG in great shape over the next decade and beyond. And in the meantime investors can get stuck in and enjoy market-beating dividend yields.
In 2018, helped by an improvement in air fares across the industry, IAG is predicted to keep its long-running growth story rolling with a 4% earnings advance. And this is expected to continue pushing dividends still higher — a reward of 29 euro cents per share is forecast by City analysts, up from 27 cents last year and a figure that yields a brilliant 4.1%.
And the good news does not end here. Helped by an estimated 9% profits advance in 2019, dividends are expected to rise to 32 cents, in turn nudging the yield to 4.5%.
At current prices IAG changes hands on a forward P/E ratio of just 6.4 times, making it an excellent value pick for both growth and income investors.
The 6%+yielder!
Another brilliantly-priced pick for dividend chasers is Standard Life Aberdeen (LSE: SLA), the company changing hands on a prospective earnings multiple of just 12.3 times.
Although the Footsie-quoted asset manager is expected to see profits flatline in 2018, its robust long-term outlook and strong balance sheet means that it should have confidence to lift the dividend from 21.3p per share in 2017 to 22.7p in the current period, or so say City analysts. Consequently the yield stands at an eye-popping 6.2%.
What’s more, supported by a forecast 7% earnings improvement next year, the dividend is predicted to rise to 25.1p. This shoves the yield to an even better 6.8%.
As I explained last time around, Standard Life Aberdeen continues to suffer from negative fund flows and this, combined with news of a major contract loss with Lloyds Banking Group, has caused its share price to collapse since the start of the year.
However, I remain convinced that enlarged group has the scale and financial clout (helped by massive cost synergies) to deliver knockout earnings and dividend expansion in the years ahead, and that this weakness represents a splendid dip-buying opportunity.
