It’s an interesting time for airlines with the North American economy recovering and the price of oil dropping to levels not seen in quite a few years. One of the largest North American airlines that I think is worth looking to buy is WestJet Airlines Ltd. (TSX:WJA). Because of the price of oil, valuation, and its dividend, I think WestJet might make for a great New Year investment.
1. Low oil prices means low gasoline prices
One of the biggest expenditures for airlines is the price of gasoline. If it is high, the profit per mile flown drops. Fortunately for all the airlines, oil has continued to drop quite a bit over the past few months, which has resulted in gasoline prices plummeting.
In August, the price for a gallon of jet fuel was US$2.84. In November, the price was US$2.30. That’s over US$0.50 a gallon, which is a considerable amount of saved money.
When thinking about gas prices, it is important to think about it across the entire fleet. One of WestJet’s 737-800 planes can carry 6,875 U.S. gallons. By cutting $0.50 from the cost of fuel, flying one of these planes to empty went from costing $19,525 to $15,812.50. For one plane, that’s not a ton of money. Across all of the airline’s flights, that’s a lot of savings.
2. It’s currently valued attractively
If you had asked me a couple of weeks ago if you should buy WestJet, I would have told you to wait a little. I don’t like buying companies at all-time highs because you never really know when the drop will come.
Fortunately for investors, the stock is now trading at around $31.50. That’s 8% down from its 52-week high. I find that to be an attractive point of entry, especially if oil continues to linger at these lower prices. It’ll give the company more time to grow.
3. It pays a consistent dividend
High dividends are great; consistent ones are better. WestJet has raised its dividend four times in the last four years. While 1.5% is not all that high, it does pay quarterly, which gives investors $0.12 every three months. If oil prices continue to stay low and management’s plan to increase revenue per mile succeeds, I anticipate the dividend rising.
These are three reasons you should consider adding WestJet to your portfolio heading into 2015. However, if dividends are what you’re interested in, you might want to take your money and put it into these three companies instead. Check out our report below for great companies that pay insane dividends.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Jacob Donnelly has no position in any stocks mentioned.