Recent Buy - WestJet

When it comes to our dividend portfolio, we are heavy in the financial sector, so ideally we want to add stocks in the other sectors to diversify our portfolio. While we do use Michael Weber's Canadian Dividend All-Star list for screening purposes, we also try to look for other lesser known dividend stocks. Recently we've been looking at some potential future dividend stars that might be overlooked by the typical dividend growth investors.

While going through some of the well-known Canadian brands, I came upon WestJet. WestJet is probably not considered as your typical dividend growth stock, especially when it's not even on Michael's list. To be honest, I've been looking at WestJet since around 2009 but never seriously considered making a purchase until recently.


We purchased 57 Shares of Westjet (WJA.TO).


WestJet is a Canada-based company engaged in the provision of airline service and travel packages. The company was founded in 1996 with three aircraft, five destinations. WestJet was primarily a company that flies within Canada but has expanded its operations outside of Canada in recent years. Today the company owns 122 aircraft and flies to approximately 93 destinations in North America, Central America, the Caribbean, and Europe. The company plans to continue expanding its offering in the future.


Valuation & Performance
From a valuation point of view, WestJet is quite attractive. The stock currently trades at a PE ratio of 10.31, a forward PE ratio of 7.9, and an expected 5 year PEG ratio of 0.6. When I see a stock with PEG ratio lower than 1, I get quite excite because it tells me that the stock has a lot of growth potential.

The stock has dropped about 30% from its 52 week high. When a stock does that you would expect some bad news, but that doesn't seem to be the case for WestJet. The Q1 earnings showed that the company is doing quite well. WestJet showed it was able to attract guests and make more money as the total guests increased by 2.2% to 4.91 million and the net income rose by more than 55% to $140.7 million. At the same time, the company was able to reduce its operation cost per seat by 7%. Just recently WestJet reported a 6.6% increase in May traffic and an increase of capacity of 9.1%. These are all very good news from a company performance point of view.


Dividend History
WestJet started paying dividend in late 2010 and has raised dividend 5 times since that time. The average dividend growth in the past 3 years is 34.23% and the company just recently increased the dividend payout by 16.7%. At current $0.14 dividend per quarter, the stock has a dividend yield of 2.09% and a payout ratio of 21.54%.  With such low payout ratio, I believe WestJet can continue its high dividend growth rate in the years to come.


The airline business is very cyclical. People tend to fly more when the economy is doing well. When the economy is bad, people usually will cut their vacation budget first. This is the same thing for businesses as well. Furthermore, fuel cost is a big expense for airlines so an increase in crude price will have a negative impact to WestJet's profit. Fortunately, right now the economy is doing well and the fuel cost is low. While these two factors should continue to be favourable for WestJet in the near term, no one can guarantee these factors will remain favourable forever.

Price competition is another risk that WestJet faces. As competition heats up, other airlines may reduce airfare to attract more customers. WestJet may be forced to do the same, causing the overall revenue to drop.


I like WestJet simply because I've always had good experience flying with them. If given the choice of flying with WestJet, Air Canada, or United, and the airfare is comparable between the three airlines, I'd rather fly with WestJet. WestJet has also been doing these annual Christmas miracle campaigns, showing it really cares about its customers.

Although WestJet is currently not on the Canadian Dividend All-Star list, I expect it to show up on the "Others" list probably by next year and get on the All-Star list in the next two years. The WestJet board has shown that they're willing to raise the dividend payout to reward shareholders. While the stock is cyclical, WestJet has shown consistent solid performance since the company went public. Considering the low payout ratio, the company should be able to weather a few bad quarters if that were to happen. In the near term I expect the company to continue generating solid profits.

This purchase added $31.92 in our annual dividend income.


What do you think about our WestJet purchase?

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  • Reply
    June 11, 2015 at 7:49 am

    Those look like solid numbers, Tawcan. Congrats on the purchase. I have always been skeptical about investing in airlines, but I should have an open mind and look into it again.

    Thanks for sharing

    • Reply
      June 11, 2015 at 3:17 pm

      Hi R2R,

      Airline business is a tough one but seeing the recent WestJet performance has changed my mind enough to invest in this sector.

  • Reply
    Jayson @ Monster Piggy Bank
    June 11, 2015 at 2:56 pm

    Taw, nice review on WestJet. Your decision is I think worth it and the risk is not that complex. I think I am gonna buy some shares as well. Thanks Taw.

    • Reply
      June 11, 2015 at 3:25 pm

      Hi Jayson,

      Thanks. We think WestJet should continue doing well in the near future... but nobody can guarantee what's going to happen in the future. Please do your homework prior to investing and don't just take my words. 🙂

  • Reply
    Mr. FSF
    June 11, 2015 at 3:03 pm

    Very nice analysis, thank you for that. We have the opportunity to buy some Canadian stocks in the near future, this might just be one of them!

    • Reply
      June 11, 2015 at 3:26 pm

      Hi Mr. FSF,

      Thanks, hopefully that opens your eyes on Canadian stocks. If you're not a Canadian, you'll have to own the A share for non-voting rights.

  • Reply
    June 11, 2015 at 10:16 pm

    Transportation sector are in decline specially the airline industry, seems like you have another winner Tawcan, valuation looks very cheap with tons of safety margin. Good luck with this purchase.

    • Reply
      June 12, 2015 at 8:52 am

      Hi FrugalityToFinancialFreedom,

      This is perhaps a little riskier investment that I made recently. Certainly riskier than buying TD, JNJ, or these giant big name companies. However I think there are sufficient margin of safety when it comes to WestJet.

  • Reply
    Dividend Gremlin
    June 12, 2015 at 9:03 am


    Man that is a great deal. Excellent find and research. Enjoy that new income!


  • Reply
    June 16, 2015 at 11:21 am

    Thanks for sharing your recent purchase with us. The airlines is a sector that rarely is bought by long term dividend investors. While it seems to be fairly priced at current levels based on earnings I would much rather prefer a little longer dividend history going back more than five years before I buy any dividend stock. As you stated, "WestJet is probably not considered as your typical dividend growth stock," which is why I'll follow along with you on this journey from the sidelines.

    • Reply
      June 19, 2015 at 5:08 am

      Hi DivHut,

      Yeah airlines are not as stable as consumer staples but the potential growth is higher. This will be one of those stocks that I'll have to pay close attention to.

  • Reply
    Dan @ Our Big Fat Wallet
    June 17, 2015 at 11:25 am

    I haven't looked too closely at buying any airline stocks but I do prefer to fly Westjet when travelling. The experience is just so much better. I am curious to see where they are headed long term, they just announced Calgary flights direct to London so my guess is more expansion into other European cities

    • Reply
      June 19, 2015 at 5:10 am

      Hi Dan,

      WestJet is expanding their routes so I believe there will be more future growth. We'll see what happens over the next couple of years.

  • Reply
    June 23, 2015 at 1:39 pm

    I pulled trigger on Westjet a week ago as well. Canadians know that Westjet is better managed company than Air Canada. Westjet is like Canadian version of Southwest. Also love that they just started on direct flight to Disneyland from Toronto 🙂

    • Reply
      June 30, 2015 at 10:16 am

      Hi BeSmartRich,

      I think WestJet is an interesting investment. The dividends have been increasing so hopefully that will be the case for the next while.

  • Reply
    July 10, 2015 at 7:59 am

    Im with DivHut on this one I will follow from the sidelines! As someone who has to travel for rotational work I am all to farmiliar with the airlines. I really dislike the transport industry as a whole but thats just me. I agree they have growth potential but it is such a cyclical industry, and to make matters worse right now we have low fuel costs for the airlines yet the stocks continue to fall. Best of luck with it tho and I hope you prove me wrong 🙂

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