Whilst bouncing away from the three-and-a-half-year furrows ploughed in July, market appetite for easyJet (LSE: EZJ) remains undeniably patchy.
There are a number of factors denting investor confidence, including fears over crimped traveller spending power as the UK prepares for Brexit; rising competition in the low-cost sub-segment; increasing fuel prices; and the prospect of further sterling weakness in 2017 and beyond.
These troubles are expected to send earnings at the airline 22% lower in the period to September 2017, and drive another stake into easyJet’s dividend policy. A second successive payout cut is expected by City analysts, this time to 42.9p per share from 53.8p in fiscal 2016.
While the scale of the predicted cut is certainly wince-inducing, share pickers shouldn’t forget that this reading still yields a market-busting 4.4%, soaring above the FTSE 100 forward average of times. And the predicted dividend is also protected two times by estimated earnings.
The trading environment may become a lot more turbulent for easyJet in the year ahead. But I remain convinced its expansion programme, allied with surging demand for budget airline tickets, should deliver robust earnings growth in the years ahead.
Make the connection
Telecoms giant BT Group (LSE: BT-A) has also fallen out of favour during 2016. The stock is now dealing at a 20% discount to levels punched at the start of the year, and touched its cheapest since October 2013 just this week.
I view this is a prime buying opportunity, however, and particularly for income chasers. BT carries a splendid 4.2% dividend yield for the period to March 2017 — created by a predicted 15.3p per share payment — and dividend coverage clocks in at a sturdy two times.
Demand for BT’s broadband and television services continues to sprint higher, helping revenues at its Consumer division shoot 11% higher during July-September. And the acquisition of mobile operator EE this year significantly bolsters the firm’s quad play proposition, providing its earnings outlook with further strength.
Mail mammoth
Although the Royal Mail (LSE: RMG) share price remains up from levels printed at the start of the year, the company has fallen out of favour more recently and its stock value hit eight-month nadirs just this week.
Fears over the impact of a cooling economy on letters and parcels volumes as the EU withdrawal process begins has hampered demand for Royal Mail’s stock in recent times. But I believe the delivery giant should remain in rude health as the e-commerce phenomenon continues to take off, as do revenues from the parcels play’s pan-European GLS division.Â
Britain’s oldest courier is expected to endure a 1% earnings slip in the year to March 2017. Still, this isn’t expected to hamper its progressive dividend policy and Royal Mail is expected to pay a 22.8p per share dividend.
Not only does this figure yield a monster 5.1%, but the touted reward is also covered 1.8 times by predicted earnings. I believe Royal Mail remains a sound long-term stock pick.