Air Canada (TSX: AC) stock has recovered admirably since the lows it hit during the March 2020 COVID-19 recession. Since hitting a low of $12.41 that year, it has risen 43%. Its recovery since the COVID lows has not been the most dramatic of all stocks that got hit hard during that recession. The S&P 500 has risen far more than Air Canada has since March 2020. Nevertheless, the company’s earnings have recovered. In 2022, AC earned positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow. In 2020, the company lost $4.6 billion and had a net cash outflow. The company is clearly recovering.
The question is, will Air Canada finally start paying a dividend? Although it is profitable once again after two years in the red, it’s still not paying any of its profits out to shareholders. In fact, it never has. This fact is perplexing because, in years past, Air Canada was quite profitable. In this article, I will explore the all-important question of whether Air Canada will start paying a dividend someday.
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Air Canada’s recovery in numbers
Air Canada’s post-COVID recovery has been pretty impressive. In 2020, the company’s revenue declined 80%, and it lost $4.6 billion. In 2022, it delivered the following performance numbers:
- $16.5 billion in revenue, up 150% from 2021 and 87% from 2019 (the last year pre-COVID).
- A $187 million operating loss.
- A $1.7 billion net loss.
- $1.5 billion in adjusted EBITDA.
- $2.4 billion in operating cash flows.
As you can see, Air Canada’s profitability was iffy in 2022 but definitely improving. Some metrics, like net income, had it still losing money, while others, such as operating cash flow, argued for some level of positive profit. That’s all academic, though, because in 2023, Air Canada finally moved toward being decisively profitable. In its most recent quarter, it delivered the following:
- $6.34 billion in revenue, up 19%.
- $1.415 billion in operating income, up about 100%.
- A 22.3% operating margin.
- $1.83 billion in adjusted EBITDA, up 73%.
- $1.25 billion in net income, up from a loss.
It was a strong showing. Air Canada is not only profitable now but is also growing its profits. In the next section, we will explore the possibility of whether it could start paying a dividend.
Has Air Canada ever paid a dividend?
Despite having been a profitable company for most of its history, Air Canada has never paid a dividend. In 2018 and 2019, it was definitely profitable enough to pay one, but it didn’t. This year’s return to profitability argues that AC may gain its “dividend potential” status once more. But will it actually pay a dividend?
Could dividends begin being paid?
Based on Air Canada’s third-quarter financials, the company could afford to pay a dividend. It has $1.25 billion in net income, which is $3.4 per share. $3.4 per quarter annualizes to $13.6. Pay half of that out as a dividend, and you’ve got a 38% yield with only a 50% payout ratio! Now, that’s a mighty enticing dividend.
However, Air Canada is probably not going to start paying a dividend anytime soon. The company took on a lot of debt because of the pandemic, and it will need to pay that off before it pays a dividend, which is a wise idea. Still, a shareholder can dream.
