Owning Qantas Airways Ltd (ASX: QAN) shares yielded no dividend income during the lockdown period of the COVID-19 pandemic. It's now delivering significant passive income for investors.
Its planes are benefiting from ongoing travel demand as well as pleasingly high airfares, translating into good profit margins for the company.
A recovery of profit has meant the board of directors have felt comfortable paying dividends to investors again during the 2025 financial year. The business has committed to paying shareholders base-level dividends as well as additional amounts if it exceeds minimum profit levels.
Let's take a look at how large the dividend income could be for investors buying $20,000 of the ASX travel share.
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Strong dividends expected
The airline held its annual general meeting (AGM) on Friday, and the market sent the valuation lower in response.
While that's not ideal for existing shareholders, it presents an opportunity for prospective buyers to invest at a cheaper Qantas share price and unlock more passive income. Essentially, the size of the share price drop results in an increase of that size for the dividend yield.
For example, for a business with a dividend yield of 5%, if the share price drops 10% then the dividend yield becomes 5.5%.
The estimate on CMC Markets suggests the airline could pay an annual dividend per share of 49.1 cents, which translates into a dividend yield of 5.1%, or 7.3% including franking credits.
If I assume a slightly more conservative estimate, a $20,000 investment in Qantas shares now could unlock $1,400 of annual passive income, including franking credits.
Time will tell whether that dividend prediction is accurate or not. Remember, dividends aren't guaranteed – the payout could be less than expected, or stronger!
Is Qantas confident about the outlook?
The airline's competition is better-positioned to challenge Qantas now than during the pandemic when Virgin was financially stricken. International routes are also competitive.
But, improved on-time performance and higher customer satisfaction levels speak of better performance by Qantas.
The airline revealed it's benefiting from business travel, which is now almost back to pre-COVID levels domestically, as well as increased activity in the resources sector.
In FY25, Jetstar carried 25% more customers internationally thanks to 11 new international routes.
The company continues to invest in fleet renewal, which comes with a sizeable cost but can also lead to reduced operating costs as well as new long-haul routes.
In terms of a trading update, Qantas said:
This morning, we released a trading update, which shows we are on track for another successful half. All segments are continuing to perform well, and mostly in line with previous guidance.
Australians' love of travel continued to drive strong leisure demand, with the resources sector and small and medium business travel also growing. Corporate travel continued to grow, although less than previously forecast.
We are adjusting domestic capacity in the second half to match the demand profile we are seeing.
Qantas shares could be a pleasing option for passive income and this could be a better valuation to buy after its fall in recent times.
