IAG share price faces turbulence as dividend drought continues

By:
on Mar 5, 2024
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  • IAG stock price has crashed hard in the past few days.
  • The company published strong financial results last week.
  • There are concerns about growth, costs, and dividends.

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IAG (LON: IAG) share price has continued to face turbulence even after the British Airways parent company published strong financial results. The stock has dropped in the past six straight days, meaning it has dropped by about 8% from its highest point in 2024 and by over 16% from its 2023 high.

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IAG, the giant aviation company, published strong financial results as business and leisure demand continued rising. 

Its total operating profit jumped to €3.5 billion, higher than the €3.25 billion it made before the pandemic in 2019. Further, the company’s operating margin rose to 11.9% from the previous year’s 5.4%.

The company is benefiting from strong demand as revenge-traveling continues. This is evidenced by the recent strong performance of top hotel companies like Intercontinental, Hilton, and Mariott. Most of these stocks have all jumped to their record highs.

It has also benefited from higher fare prices even as competition in the industry rises. This trend is expected to continue this year as capacity moves above its pre-pandemic highs. A recent study showed that fares are expected to rise by between 3% and 7% this year. 4.7 billion people are expected to fly this year.

Therefore, IAG stock price has plunged for three main reasons. First, most investors anticipate that the recent strong demand will start to slow this year. Historically, travel demand tends to rise at a slower pace than we have seen recently.

Fortunately, IAG’s growth has been driven by leisure travel. This situation could change this year as business travel rebounds. This segment is usually more lucrative since companies are the ones that make the payments.

Second, there are concerns about the rising costs in the industry. Workers are now earning more money while the price of jet fuel is expected to remain high this year. On the positive side, it has invested in fuel-efficient planes, which could help it reduce its total operational expenses.

Third, IAG share price dropped because the company skipped its dividend even as its profits jumped. IAG has prioritised creating a huge cash buffer and paying back its substantial debt instead of dividend payouts. Its net debt on December 31st dropped to €9.2 billion from the previous €10.3 billion.

IAG share price forecast

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iag share price

IAG chart by TradingView

IAG stock has not done well recently. It formed a double-top pattern at 157.25p between January and February and is now nearing its neckline. The stock has also dropped below the 50-day and 200-day Exponential Moving Averages (EMA). 

Most importantly, it is hovering slightly above the ascending trendline that connects the lowest swings since December 2022. The RSI has dropped slightly below the neutral point.

Therefore, the outlook for the stock is extremely bearish if it moves below the ascending trendline. If this happens, the next price target to watch will be at 136.65p, the lowest swing in October last year.

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