IAG shares slump despite promise to resume dividend payout

British Airways owner IAG SA dangled the prospect of resuming dividend payments for the first time after the Covid-19 pandemic as soaring travel demand helps repair its balance sheet. Still, that wasn’t good enough for shareholders. 

Shares in the airline group slumped as the announcement lacked concrete timing on when payouts will resume, with IAG saying it would reinstate dividends once its balance sheet and investment plans were secure, according to a stock exchange filing. 

IAG fell as much as 4.4%, reversing earlier gains of as much as 1.1%. The stock has gained about 26% this year.

“Perhaps the market could have been expecting more near-term commentary rather than medium term,” said Stephen Furlong, an analyst at Davy. 

IAG last paid out a dividend in 2019, and scrapped a planned payout in 2020 at the start of the Covid-19 pandemic. Earlier this month, Ryanair Holdings Plc said it will pay a dividend of €400 million ($430 million) and plans to hand over about a quarter of annual profit to shareholders.

In a presentation for investors, the airline group also mentioned share buybacks and special dividends as ways to give returns to shareholders. IAG set medium-term targets of an operating margin of 12%-15% and a return on invested capital of 13%-16%. 

“We are looking to consolidate the industry but once we’ve looked at the opportunities that are out there for inorganic growth, any excess cash that we have, we will also look to return that back to our shareholders,” Chief Financial Officer Nicholas Cadbury said in a video posted on the company’s website as part of its capital markets day.

The company said in its investor presentation that it will invest €2.5 billion in customer experience over the next three years, and €1.7 billion in IT and digital. 

The airline group wants to rebuild its fleet to 2019 levels by 2025, and plans to invest almost €9 billion in fleet replacement and growth. With BA having retired its fleet of 31 Boeing Co. 747s during the pandemic, the company cited a lack of aircraft capacity as a reason for a slower return to 2019 levels of flying amid sluggish deliveries of new jets from manufacturers.