Two things investors should know about easyJet’s dividend

easyjet dividend cut

For long-term investors, easyJet (LON:EZJ) (EZJ.L) has probably been an excellent investment. Over the last five years the stock has nearly tripled in price and the company has paid some healthy dividends along the way.

However, in the last two years, easyJet shares have experienced share price weakness, with Brexit uncertainty, increased terrorism, strikes and heavy competition from rivals all affecting profitability and sentiment towards the stock.

At the current share price of 1,340p, easyJet trades on a trailing P/E ratio of 12.4 and trailing dividend yield of 4%, which no doubt look appealing at face value.

However, if you’re looking at easyJet from a dividend perspective, there’s two important things you should know.

Dividend policy

The first thing that’s worth noting is easyJet’s dividend policy. The company has stated on its website that it intends to pay out 50% of its post tax income. While a clear policy like this is a positive, the issue is that if profitability declines, then we may see a considerable drop in the dividend, and that’s never good from a dividend investing perspective.

FY2017 dividend cut

And unfortunately, that’s exactly what looks like will happen this year. Profit after tax is forecast to decline from £427m last year to £309m this year and that means a rather significant dividend cut is on the cards.

At present, analysts currently forecast a dividend payout of 37.9p for FY2017, down from 53.8p last year. That equates to a yield of 2.8% at the current share price, which is obviously a fair bit lower than the yield the company has generated in recent years.

For this reason, I’ll be steering clear of easyJet, as from a dividend growth investor perspective, ideally I want to see a dividend that increases on a regular basis, not one that’s cut by 30% when profitability dips.

Disclosure: Edward Sheldon, CFA has no position in easyJet. 

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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