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An Airline Stock With High Margins? Yes, It Exists

Posted
1/3/2014 5:15:00 PM
By: Investor's Business Daily
Referenced Stocks:CPA;JBLU;SAVE

Back in August,Copa Holdings ( CPA ) did something that individual dividend investors had to applaud.

Traditionally, Copa paid its dividend once a year -- a payout that is a turn-off for many income investors. However, on Aug. 7, Copa's board changed its dividend policy in two ways.

First, Copa changed the dividend payout to quarterly distributions. Second, the company changed the payout formula. Previously, the dividend reflected 30% of estimated annual net income. Now it would reflect 40% of the prior year's annual consolidated net income -- paid out in four 10% portions.

Currently, the quarterly payout is 73 cents a share. The annualized yield is 1.8%.

The Panama-based airline, which flies routes to 29 countries, has a mix of things going for it: Latin America is a region with growth potential. Panama's GDP growth was 8.9% in Q3. Copa's fleet of 90 aircraft is relatively young. And the airline serves many thin routes that it can charge more for.

The last factor has helped boost margins.

Copa's pretax margin was 16.7% in 2012, easily the leader in the airline group. Most big airlines operate on low, single-digit margins. And even discount airliners such asSpirit Airlines ( SAVE ) andJetBlue ( JBLU ) can't match Copa's margins. Spirit and JetBlue had pretax margins of 12.7% and 4.2% respectively.

The company also could benefit partly from the U.S. economic recovery. Destinations to the U.S. include Chicago, Miami, Las Vegas, Los Angeles, New York, Orlando, Fla., and Washington, D.C.

Earnings for Copa grew 4%, 37%, 45% and, in the most recent quarter, 19%. Revenue jumped 15% to 18% in the same periods. The Street expects Q4 earnings to grow 25% on a 12% revenue gain.

The stock recently cleared a 156.53 buy point in a flat base. As of Friday, it was still in the 5% buy zone that runs to 164.36.