The easyJet (LSE:EZJ) share price has rocketed in 2023. In fact a 58% rise since January 1 makes the budget airline one of the FTSE 250’s top-ten best performers in the year to date.
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Positive trading updates from across the airline sector have lifted the Luton-based flyer higher. And City analysts are expecting profits at easyJet to surge as the post-Covid rebound continues.
The company is tipped to bounce back into the black this financial year (to September 2023) from losses per share last year. Annual earnings are then projected to leap 40% and 51% in fiscal 2024 and 2025, respectively.
Dividends tipped to return
But easyJet shares are about more than just earnings growth. Forecasters are also expecting dividends to return next year and to increase rapidly thereafter.
Total shareholder payouts of 12.4p and 19.1p per share are currently anticipated for financial 2024 and 2025, respectively. This means the firm’s dividend yield marches from 2.4% for next year to a healthy 3.7% the following year.
And on paper it seems as if easyJet is in good shape to meet analysts’ projections. Dividend estimates are covered more than three times by predicted earnings over the medium term. Any reading over two times provides investors with a wide margin of safety.
Continued improvement in easyJet’s balance sheet could also help it to pay those predicted dividends. Net debt is falling rapidly and dropped to £200m as of March.
Full throttle
To conclude, it’s clear that the airline is flying right now. Half-year financials today showed turnover jump 80% in the six months to March, to £2.7bn, as demand for its cheap plane tickets and package holidays both boomed.
Pre-tax losses narrowed to between £405m and £425m in the period, down from £545m a year earlier. And for the full year to September, easyJet now expects profits to beat broker forecasts of £260m.
Capacity at easyJet is rising strongly as ticket demand continues to heat up. It rose 40% in Q2 and is tipped to hit pre-pandemic levels in the summer.
So what’s the catch?
On the face of it, easyJet shares might look like a slam dunk buy. But I still have my reservations about buying them for my own stocks portfolio.
Plane tickets continue to sell strongly. But is this mainly thanks to the savings people built up during Covid lockdowns and that could now be running out? And can the airlines keep up the momentum as the cost-of-living crisis endures?
Signs of ‘sticky’ inflation in Europe should come as some concern to easyJet and its investors. Consumer price inflation stood at 8.5% in the eurozone in February, remaining around levels recorded the previous month. And in the UK it actually rose to 10.4% in February.
On top of this, easyJet’s return to strong profitability could be hampered by increasing fuel prices. Elevated oil prices are a constant problem for airlines. And the strain on earnings could grow as OPEC+ countries continue to cut crude production. Increasing labour costs are also dangers to the airline industry.
easyJet’s performance has been outstanding in the post-Covid environment. Yet I’m still to be convinced that it can keep its impressive momentum going. All things considered, I’d rather buy other dividend shares today.
