2014-06-10

By now many of you know that I love to focus on certain themes when deciding where to place my investment money. In the past I have written about finding these investment themes in your bathroom, breakfast table and even on the farm. Today, I want to share with you several dividend stocks all centered around travel and specifically, flight. Think about all the different air carriers, leasing companies and airport operators that coexist to try and make air travel safe and efficient. Of course, the purpose of this writing will be to focus on dividend paying stocks centered around flight.

Let’s begin with several of the dividend paying airlines and Copa Holdings SA (CPA). CPA is an airline passenger and cargo services provider that serves central and South America. Headquartered in Panama City, Panama, CPA is located in a very strategic geographic area for handling flights within Latin American and North America. CPA currently yields a generous 2.70% with a very low payout ratio of 19.6% which ensures the dividend is safe and even has room to grow. CPA’s dividend history only goes back to 2006 but it has been increasing its dividend payments the last four years and in the current climate should continue to raise them. From a valuation perspective CPA offers a low PE of 13.6 which makes it attractive compared to S&P levels but is somewhat higher than its peers. Among the airlines CPA has really proven itself and it definitely shows in its stock price.

Next up is the domestic regional carrier Alaska Air Group, Inc. (ALK). Based in Seattle, Washington ALK operates a fleet of aircraft primarily on the west coast, Alaska, Hawaii and Mexico, though routes are expanding to cover much of the United States in recent years. ALK currently offers a relatively low yield of 1.00% with no recent dividend increases but like CPA has a very low payout ratio of only 14.3%. Under current conditions this dividend is safe. The PE of ALK is also low relative to the S&P at only 12.3. As you know, finding relative bargains in this market is increasingly difficult and when a dividend payer presents itself with a low PE it makes you think about a potential buying opportunity.

Finally, among the air carriers I want to highlight Southwest Airlines Co. (LUV). Based in Dallas, TX, LUV operates a large fleet of jets numbering almost 700 and chances are you have flown this airline at least once. LUV currently offers a low yield of 0.90% with a low payout ratio of only 16.3%. Notice the low payout ratios for all three airlines? Their current yield might not be generous but at least you know the dividends are safe with room to grow. From a valuation perspective LUV is the priciest among the three airlines mentioned at 23.1. LUV is an expensive stock these days no matter how look at it. Better wait to pull the trigger on this one.

Airlines must get their planes from somewhere and usually that somewhere is from an air leasing corporation and with that introduction I’d like to introduce the appropriately named Air Lease Corporation (AL). AL purchases and leases commercial jets to airlines worldwide. Among some of the airline customers AL provides planes to are Air Canada, Hawaiian Airlines, Southwest Airlines, United Airlines, Air China, Cathay Pacific Airways to name just a few. AL currently offers a low yield of only 0.30% which is barely something to get excited about but its payout ratio is absurdly low at only 5.1% and I would classify AL as more of a growth story than a stable dividend payer. AL has a lot of room for capital appreciation from its financing business. From a valuation perspective AL is a bit high relative to the S&P at 21.8 but slightly less than its peers.

From the ultra low yield of AL we now move on to the high yielding airline leasing business Aircastle LTD (AYR). Like AL, AYR leases planes to many high profile airlines including Alaska Airlines, Delta Air Lines, Korean Air, US Airways and Virgin Australia to name a few. AYR offers a generous yield of 4.70% which I know will get the attention of many dividend bloggers seeking current yield. It has been raising its dividend for the last three years and has a moderately high payout ratio of 78.4%. At that level the dividend is most likely safe but future increases may be harder to come by. In terms of value AYR currently sports a PE of 111.1 clearly making it one of the more expensive stocks featured from a valuation perspective. Though AYR has an attractive yield you may want to proceed with caution before buying this one at current levels.

Finally, I want to highlight two airport operators that are engaged in the development, operation, and management of airports throughout Mexico. These companies lease space to restaurants, retailers, banks, and advertisers. They also provide baggage handling services, catering services, aircraft maintenance and repair services, fuel services as well as operate retail stores such as duty-free shops, car rental counters, VIP lounges and tourist information and promotion services to name just a few. Basically, if you are in a Mexican airport Grupo Aeroportuario del Pacifico S.A.B. de CV (NYSE: PAC) or Grupo Aeroportuario del Sureste, SAB de CV (NYSE: ASR) will be providing their services to you and the airlines.

Let’s examine PAC first. PAC offers a current high yield of 5.50% with an equally high payout ratio of 138.2%. While the yield is quite nice a payout ratio over 100% is difficult to maintain long term. From a PE perspective PAC is relatively low compared to its peers at only 18.1 and right about equal to the S&P. From a value perspective only PAC may be a good buy at these levels.

Next up is ASR. ASR currently offers a decent yield of 2.60% with a more reasonable payout ratio of 59.8% which makes this dividend payer relatively safer than PAC. ASR has also been growing its dividends the last three years which is something any dividend growth investor wants to see. From a value perspective, ASR is a little pricier than PAC at 20.7 but still reasonable by most stocks trading in these pricey markets.

Sometimes, we have to look for dividend opportunities beyond the “standard” players such as the companies I featured in previous articles and look at certain sectors or industries not labeled or known for their dividend payments. The airline, air lease and airport operators may present an opportunity to diversify your dividend portfolio.

Disclosure: Long none

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