Flight Centre Travel Group Ltd (ASX: FLT) shares are in COVID-recovery mode, with the share price climbing from an all-time low of $8.92 during the market crash in March 2020 to $20.03 today.
After a four-year freeze on dividends, the company resumed paying them last year.
Flight Centre announced the resumption of dividends as part of its FY23 full-year results. The company told the market it had returned to profit and would pay an 18-cent final dividend, fully franked.
That was well off the last final dividend of 98 cents per share announced in September 2019.
That 18 cents represented a measly 0.8% dividend yield based on the Flight Centre share price at the time.
The company said it would allocate 50% to 60% of net profit after tax (NPAT) to dividends and/or buybacks in the future.
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What has happened since COVID?
COVID decimated Flight Centre's business and earnings and forced an internal operations overhaul.
But the company made it out of the COVID emergency alive, and in FY23, it reported its second-best full-year result ever after total transaction value (TTV) more than doubled during the recovery to $22 billion.
That was second-best to the financial year prior to the pandemic, FY19. Back in those days, Flight Centre shares were trading at all-time highs, hitting a historical peak in August 2018 at $70.53.
Today, the ASX travel share is trading at less than a third of that value, but its earnings are clearly on the way back to pre-pandemic levels.
Not only that, but that overhaul mentioned earlier led to operating expenses falling to 75% of what they were in FY19. Productivity has also improved, with TTV per full-time employee up 52% compared to FY19.
Does this present an opportunity to buy Flight Centre shares at a pandemic-pummelled price, with the dividend yield on those holdings likely to rise as earnings and dividends grow from here?
Let's see what the experts have to say about the passive income potential of Flight Centre stock.
What are the brokers forecasting for dividends?
The consensus analyst forecast published on CommSec today shows the Flight Centre full-year dividend is expected to be 47.4 cents in 2024. On today's share price, that's a yield of 2.26%.
In 2025, the analysts expect Flight Centre to pay about 69 cents per share. That's a yield of 3.3% on today's price.
And in 2026, the analysts are tipping a dividend of 84.2 cents, or a yield of 4%. That's pretty much the average dividend yield delivered by ASX 200 shares.
But here's the bigger question.
Could Flight Centre ever go back to paying dividends at the level it did before the pandemic?
In 2019, the company paid $1.58 per share (excluding a special cash dividend). In 2018, it paid $1.67 per share. At those levels, the yield on Flight Centre shares bought today would be 7.5% to 8%!
Will the Flight Centre share price grow in 2024?
Analysts at Morgans think the Flight Centre share price could appreciate by about 25% this year.
They have an add rating on Flight Centre shares with a 12-month price target of $26.
The broker says it has confidence that the travel recovery "has much further to go". It also noted that the benefits of Flight Centre's transformed business model are only now emerging.
The consensus rating on Flight Centre, as published on CommSec today, is a moderate buy. The travel stock was upgraded from a hold rating in February 2023. It was reviewed in May and kept the same.
Of the 17 analysts providing ratings on Flight Centre shares, eight say the stock is a strong buy. Three say it's a moderate buy, and six say it's a hold.
It's worth noting that Flight Centre shares have been among the most shorted stocks on the ASX for some time. In our latest report, we revealed a short position of 8.3% on Flight Centre shares.
While this is a significant portion of capital, it is a vast improvement on this time last year when 14.07% was shorted.
At the time, Flight Centre was trading at $15.86 per share. The travel stock continued to rise throughout 2023, defying those pessimistic predictions of price falls.
