Since the pandemic restrictions eased, it has been a long road to recovery for International Consolidated Airlines Group (LSE:IAG). The IAG share price is finally on a trend higher, with it gaining 15% over the past year. As financial results continue to improve, there’s one element that I think could kickstart further gains for next year.
Getting back to normal
The latest quarterly results show that IAG is almost back to pre-pandemic health. Operating profit before exceptional items jumped to €1.7bn. This is up from €1.2bn from the same quarter last year.
What’s also pleasing to note is the spread of performance across different carriers. British Airways leads the charge, with revenue for the quarter up 20%. Yet Aer Lingus total revenue increased by 16%, with Vueling delivering a record operating profit of €282m.
This shows to me the performance isn’t just a flash in the pan, but rather a good indicator that the sector as a whole has strong demand.
To cap it all off, the outlook is to “expect full year 2023 capacity to be around 96% of pre-COVID-19 levels”.
What I’m waiting for
Things won’t be quite back to normal until dividend payments are resumed. The business cut the dividend back in 2020 and hasn’t paid one since. However, given the levels of profit now being recorded, it looks like things could change.
At a capital markets event in November, the firm spoke of a medium term (2024-2026) ambition to resume paying dividends. This is a great sign, as it shows the company is conscious of paying out income to investors.
Will this happen next year or will we have to wait until 2025? It’s too early to tell. It looks like we’ll find out at the end of February when the full-year results are released.
If a dividend is announced then, this would be the big event that I think could help the share price. It’s less about the actual dividend per share figure. Rather, it’s the intent that income should start to flow again after the past few years.
What it could mean for the share price
When confirmation comes, I think the stock could really jump. This is on the basis of it being an attractive long-term buy for income investors. Over the past few years, only value buyers have really been interested in picking up an undervalued share.
Yet with the resumption of income payments, it opens the door to a large segment of the retail investing market.
Of course, my view could be wrong. Initially, the low dividend yield (I’d estimate it to be between 1-2%) might mean people simply ignore it. Or it could be that financial results for IAG start to falter. This would make the management team more concerned about starting to pay dividends again and could push it back.
We’ll get more clarity in February, but IAG is definitely on my watchlist for a potential purchase early next year.
