The International Consolidated Airlines (LSE: IAG) share price is flying right now.
The FTSE 100 stock remains around a fifth cheaper than it was a year ago. But it’s jumped 33% since the release of third-quarter financials in mid-October.
The British Airways owner hasn’t paid a dividend since the Covid-19 crisis exploded. But City analysts are expecting it to grow shareholder payouts rapidly over the next couple of years.
Is now the time for me to buy IAG shares to boost my passive income?
Robust dividend forecasts
First off, it’s important to note that dividend yields are pretty small right now. For 2022 and 2023, these sit at just 0.1% and 0.7%.
Still, the rate at which dividends are expected to grow has really caught my eye. As a long-term income investor I’m tantalised by the prospect of strong dividend growth lasting beyond next year.
IAG is expected to get the ball rolling again with a payout of 23 euro cents per share in 2022. The dividend is then expected to balloon to 1.16 cents in 2023.
It seems there’s a great chance of the business hitting these expected dividends, too. They are covered 13.6 times over by predicted earnings this year and 18.3 times for 2023.
Bouncing back
Such predictions of breakneck dividend growth reflect City forecasts of explosive earnings growth over the next two years. Current consensus suggests IAG’s bottom line will jump 276% between 2022 and 2023.
Third-quarter financials last month showed how strongly the firm is rebounding from the Covid-19 peak period. Revenues rose to €7.3bn in the quarter, up 0.9% from 2019 levels. Performance was particularly impressive, given ongoing disruption at Heathrow Airport and pandemic-related shutdowns in Asia.
The business also swung to an operating profit of €1.2bn for the July to September period. It recorded a loss of €452m a year earlier.
To buy or not to buy
It’s fair to say that things are going pretty well at IAG. And profits could continue soaring in the post-pandemic environment.
The budget airline sector is tipped to lead the rebound in the civil aviation market over the next decade. IAG has exposure here through its Vueling and Aer Lingus brands. The company also has excellent structural opportunities as passenger numbers grow across the globe.
That said, I still believe the FTSE 100 firm still carries too much risk for investors like me. Ticket sales could slump again as runaway inflation puts consumer spending under pressure. Spending on big-ticket items like holidays is one of the first things to fall when times get tough. The ongoing presence of Covid-19 in Asia provides a constant threat too, of course.
Meanwhile, airlines like this face the prospect of elevated fuel prices persisting and wage demands spiralling out of control due to labour shortages.
Finally, I’m worried about IAG’s massive net debts given those profits risks. This clocked in at €11.1bn as of September. It is also costing the business a fortune to service as interest rates rise.
IAG’s recovery is impressive. And it certainly is a FTSE 100 stock to watch. But for the time being, I’m happy to carry on buying other dividend stocks.
