Will IAG Shares Climb Now Dividends Have Been Reinstated?

IAG (LON: IAG), the parent company of British Airways and Iberia, delivered a strong first-half performance, buoyed by robust travel demand. The group's operating profit surged to €1.3 billion, a significant increase compared to the same period last year.

Total revenue came in at €14.72 billion, up from €13.58 billion reported in the same period last year.

However, the company's announcement of a reinstatement of the dividend, at €0.03 cents per share, is a positive step for IAG as it continues to recover from the pandemic. The company's strong financial position, including €3.2 billion in free cash flow for the first half, underpins this decision.

IAG shares initially rose on Friday following the results and news that the company has scrapped its deal to acquire Air Europa. However, on Monday, it declined more than 1%. At the time of writing on Tuesday, IAG shares are up around 0.8% at 166p a share.

Nevertheless, while the dividend is undoubtedly positive news for shareholders, IAG's share price trajectory will likely depend on several factors. Maintaining strong booking numbers, managing operational challenges, and fuel costs will be crucial.

Additionally, continuing to lower its net debt will also be a factor. In H1 2024, net debt was €6.4 billion, down from the €9.2 billion net debt in H1 2023, with the company “benefitting from seasonal working capital inflows.”

Furthermore, investors will be assessing the company's ongoing transformation efforts, including improvements at British Airways.

IAG's outlook for the remainder of the year remains positive, with the company expecting continued strong demand in its core markets. While capacity growth is expected to be around 7%, the group anticipates a slight increase in non-fuel unit costs.

Investors will be watching closely to see if the dividend announcement can provide a sustained lift to IAG's share price. The company's focus on cost control, combined with the ongoing recovery in the travel sector, could be key factors in determining its future performance.

Following last week's results, analysts at Morgan Stanley lifted their price target for IAG to €2.90 from €2.80 a share, maintaining an Overweight rating on the stock, while Goldman Sachs raised its target on the stock to £2.55 from £2.50, maintaining a Buy rating.

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