Qantas set to resume dividend payouts next year, analysts predict

Qantas shareholders haven’t received a dividend since 2008. But things are looking up.

A Qantas A380 flies over Sydney Harbour.

Qantas is set to next year deliver its first dividend since the financial crisis, according to analysis from Citi.

The bank’s analysts have made the call as they predict a reduction in capacity will improve the national carrier’s profitability metrics, and forecast the bitter price war with Virgin will become a distant memory.

They are also expecting the international operations to become less of a drag as discounting on flights to the UK and the US subsides.

“With the benefits of the domestic duopoly yet to be recognised, and the structural changes to international still a few years away we do believe there can be increased confidence in the delivery of the earnings and free cash flow profile for Qantas,” Citi said.

“In avoiding another domestic capacity (and price) war, we believe the earnings base from domestic, coupled with the earnings profile of frequent flyer, continues to support further capital management opportunities.”

In Citi’s view the capital management strategy will remain focused on buybacks this year, with $490 million of shares tipped to be reclaimed by Qantas (QAN). Last year, the group reclaimed $505m worth of stock.

However, the focus may shift in the 2017 financial year provided there is no sudden downturn in the operating environment.

“With tax credits still needed to be worked through to start adding to franking credits, we see another buyback as increasingly likely to be announced at the FY2016 results, with the prospect for dividends to resume in the first half of FY2017,” the report said.

Citi believes the group could deliver $363m in dividends through the 2017 financial year.

Qantas has not declared a dividend since the second half of calendar year 2008, with the airline first dealing with depressed demand on the back of the financial crisis before being hit by a surge in oil prices.

The oil price issue has since turned into a tailwind for Qantas, which announced a swing to a $557m profit last financial year.

Softness in consumer demand over the past couple of months has slowed the carrier’s performance this year, but it is still on track for profit, with the company announcing on Monday it had arrested a brief slide in a key domestic profitability measure.

Citi applauded this news in its latest report, but warned the airline sector was always on edge amid the risk for an international shock to crimp profits.

Qantas stock has slumped 25 per cent since mid-April, owing to its decision to trim capacity guidance, but Citi believes traders have overreacted.

“Overall, the share price reaction … has been severe, and one that doesn’t reflect the underlying earnings quality in the business, in our view, nor the structural improvements management are delivering,” the bank’s analysts said.

“Nor does the share price reflect the quantum of dividends and buy backs expected to be delivered by the board over the next 15 months.”

Qantas shares traded up 0.2 per cent at 1.30pm (AEST), against a broader market fall of 0.9 per cent.