It was a difficult day on Tuesday for EasyJet plc (LON:EZJ) (EZJ.L) shares. The easyJet share price fell from 1310p to around 1200p. At the time of writing the easyJet share price is 1222p.
The easyJet results were not particularly impressive, nor were they particularly disappointing in my view. Obviously, easyJet as a mainly ‘short haul’ tourist airline is going to make less profits in the winter than in the summer. Apparently in 19 out of 21 first halves to the financial year, easyJet has made a loss. I feel that given that statistic, the easyJet share price may have fallen by too large a degree.
At current levels, the easyJet dividend yield is 4.4%. In my view, a stock which has a dividend yield of over 4.1% as well as a dividend coverage ratio of at least 1.5 is worthy of a closer look. easyJet has a prudent policy where its dividend is covered at least 2 times by earnings.
This meant a slight reduction in the dividend paid in 2016 to 53.8p. However, this was covered 2.01 times by earnings. In 2015 the dividend cover was 2.52, which is very high in my opinion. Compared to another popular income share such as HSBC Holdings plc (LON:HSBA) (HSBA.L), which has a dividend coverage ratio of around 1.3, easyJet’s dividend is covered to a significantly greater degree by profit.
This potentially provides easyJet with the scope to increase dividends by a greater amount in future if it so wishes. It may also guard against serious cuts in dividends. The company is buying more aeroplanes and the load on current routes is improving according to its recent results.
In my view, if it’s possible to buy easyJet shares for around 1200p then I may look to do so. Although the easyJet share price has fallen of late, I think it could have investment appeal for the long run.