Westjet Airlines: This Unlikely Dividend Story is Just Getting Started

When investors think about dividend growth stocks, they don’t usually think of airlines. In fact, it would probably be the last sector they would think of.

Most of North America’s airlines have been plagued with a number of factors including irrational competitors that seek to get market share through price wars, high fixed costs, and labour unions that make it difficult to make needed layoffs when times are tough.

Because of these factors, many investors choose to ignore the airline business completely. Besides, when times are bad airlines have been known to file for bankruptcy protection.

There’s one Canadian airline that has bucked the trend, however. This company is consistently profitable and pays a solid dividend.

That company is Westjet Airlines Ltd. (TSX:WJA), and it is one of the few airlines with consistent enough earnings to reward shareholders with an increasing dividend.

It is doing a nice job keeping unions out of the company and growing ancillary revenue from things like checked bag fees and in-flight wifi. It also successfully pushed startup challenger New Leaf out of the Calgary to Phoenix route after starting a price war.

Westjet started paying a dividend in 2010, setting the payout at $0.05 per share quarterly. These days the distribution has increased to $0.14 per quarter, an increase of almost 200% in just six years.

Westjet’s payout ratio is a mere 22% of trailing earnings, so I like the company’s chances of increasing its dividend for a number of years.