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Does WestJet Airlines Ltd. Belong in Your Portfolio?

Finding stocks that pay well and are undervalued in this market is really difficult. With the way stocks are going, you’d almost expect that every company would be overpriced. But the good news is that there are companies that pay their investors pretty well, while also being terribly undervalued. While that is good news, does that mean they’re immediate buys?

WestJet Airlines Ltd. (TSX:WJA) is one of the companies that I have my eye on because it has dropped 23.69% from its 52-week high. Any time that a company drops that much, I have to be a little curious because investors are emotionally flawed creatures. We make moves when we should probably just sit back and wait, resulting in us losing a lot of money.

So, the question is, does WestJet Airlines belong in your portfolio?

The answer is not so simple. Unlike other stocks that have much more security even if the economy gets worse, an airline relies on a healthy economy. People will buy food if they don’t have a job. People are not going to fly to Disney World if they don’t have a job.

Because of this, buying WestJet Airlines is an indirect vote of confidence in the economy. What you’re saying is that you believe the company is going to reap the benefits of a healthy, growing economy. If you believe that, WestJet Airlines is definitely worth buying. If you don’t, it might be a good idea to skip to the end of the article for an idea on a company you should definitely check out.

The first-quarter earnings for the company show that it is doing surprisingly well, which should make investors happy. Its net income rose by 57.6% to $140.7 million. Its operating margin expanded, which means the company is making more money on its revenue. All told, this past quarter was the 40th straight quarter that WestJet was profitable.

This ensures that the company is able to pay a dividend to its investors. At 2.1%, the company pays out $0.56 per share annually, broken up into quarterly payments of $0.14. WestJet isn’t about to aggressively alter your livelihood, but what I find appealing is that this dividend is growing. Over the past three years, this dividend has been hiked five times. I like getting raises and WestJet is doing what it can to give its investors a raise. And as cash flow increases, and the last quarter showed that it has, the company will be able to continue offering these dividends.

Should you buy?

This goes back to your opinion on where the economy is headed. However, if the company has remained profitable for 40 straight quarters, I have a hard time imagining the company will suffer from any long-term problems. Should the economy tank, the price could drop. But the dividend will continue, allowing you to grow your position even with the stock price depressed. I would recommend buying a small position in this stock, with the plan of reinvesting the dividend.

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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.

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