Is 6.4% Yielding Chorus Aviation's Monthly Dividend Safe? Sure Dividend

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Is 6.4% Yielding Chorus Aviation’s Monthly Dividend Safe?

Updated on March 6th, 2019 by Nathan Parsh

Monthly dividend stocks are unique in their ability to generate consistent dividend income for their shareholders. Unfortunately, there are very few monthly dividend stocks.

We’ve compiled a list of the 41 monthly dividend stocks, which you can access below:


Chorus Aviation (CHR.TO) (CHRRF) is one of these 41 stocks that pay monthly dividends, helping it to appeal to retirees and other income-oriented investors.

Chorus Aviation also stands out because of its remarkably high dividend yield. Chorus Aviation is trading at a yield of 6.4%. The company’s yield is more than three times that of the average yield of the S&P 500.

You can see a comprehensive list of all high dividend stocks with 5%+ yields here.

Because of its high dividend yield and monthly dividend payments, Chorus Aviation might seem like an attractive investment. Some due diligence reveals that this isn’t necessarily the case.

Business Overview

Chorus Aviation is an airline holding company based in Canada whose main asset is the ownership of the Jazz Aviation airline. The company has a market capitalization of $911 million and is headquartered in Halifax, Nova Scotia, Canada. Chorus Aviation held its initial public offering in 2006.

Jazz Aviation is primarily a contractor of airline services to other airlines, primarily Air Canada under the brand name Air Canada Express.

More specifically, Chorus Aviation has three primary business lines:

Additional details about the operating segments of Chorus Aviation can be seen below:

CRF Aviation

Source: Investor Presentation

It should be noted that Chorus Aviation is an international stock that trades on the Toronto Stock Exchange under the ticker CHR.

It should also be noted that U.S. investors face a 15% withholding tax on dividends paid by Canadian companies. This withholding tax is waived if shares of Canadian companies are held in approved retirement accounts, such as an IRA.

Growth Prospects

Investors can often gather a sense of a company’s ability to grow organically by considering its historical performance. All else being equal, companies with long track records of growth are more likely to continue growing looking forward.

Chorus Aviation’s historical performance leaves much to be desired. Aside from a one-time jump in revenue between fiscal 2007 and fiscal 2008, the company’s revenue has not shown meaningful growth.

That changed in 2018, as Chorus Aviation had a 7.3% increase in revenue from 2017. Time will tell if this is the beginning of a turnaround for the company or if this is more of a one-off occurrence.

Stagnating revenue is never welcome, but sometimes it can be offset by cost-cutting. After all, stable revenues and declining expenses will lead to higher net income.

In Chorus Aviation’s case, this has not occurred. The company’s net income has shown a very similar trend to its revenue – no meaningful increase since the company’s 2006 initial public offering.

This trend continued in 2018, as net income declined 60%. This decline was primarily due to a negative impact of currency translation. Adjusted net-income improved 5.5%. As with revenue, Chorus Aviation has not been able to provide sustained growth in net income over long periods of time.

To make matters worse, Chorus Aviation’s shares outstanding have increased substantially. Between fiscal 2007 and fiscal 2008 a substantial secondary share offering quadrupled the number of shares outstanding from ~25 million to ~100 million. Shares outstanding stand at more than 139 million today, which has the effect of shareholder dilution.

Looking ahead, Chorus Aviation is expecting to drive growth by expanding its existing contracted flying operations to new customers and new geographies. The company leased seven new aircraft in the fourth quarter of last year. Chorus Aviation’s fleet of aircraft numbered 40 at the end of 2018.

While we like that the company is increasing the size of its fleet, we find that Chorus Aviation’s track record gives investors little confidence that this new growth plan will lead to superior investor returns over the long run.

Competitive Advantages & Recession Performance

Chorus Aviation operates in the airline industry, a sector of the stock market that is notorious for its inability to endure through economic downturns.

Some research reveals that Chorus Aviation is no different. This can be seen from the company’s earnings-per-share history before, during and after the last recession.

The company has experienced wild swings in profitability during this time period. Investors looking for stable earnings-per-share growth are likely to be disappointed with Chorus Aviation.

The company’s dividend history is also very choppy. Since Chorus Aviation’s initial public offering in 2006, it has cut its dividend not once, not twice, but three times.

While there are certainly companies that can recover from the ill effects of a dividend cut, we prefer to invest in businesses with long histories of steadily rising dividends (such as the Dividend Aristocrats).

Chorus Aviation’s track record of dividend cuts means that we hesitate to recommend this stock for income investors.

Valuation & Expected Total Returns

Using the current share price of $7.45, the stock is trading with a price-to-earnings ratio of 9.9 at the moment.

Chorus Aviation’s current price-to-earnings ratio is slightly below its long term average. In addition, the company is trading at a price-to-earnings ratio that is above many of the larger, more stable airlines, despite Chorus being a significantly smaller and riskier stock.

We assign a 2024 price-to-earnings ratio target of 7 for Chorus Aviation. This is more in line with the valuation of peers. Given the nature of earnings-per-share growth, we feel that investors should continue to expect volatile growth in this area.

Therefore, we don’t expect earnings-per-share to grow in a meaningful way over the next five years. Expected total returns are as follows:

We expect that shares of Chorus Aviation could generate negative total returns of 0.3% per year through 2024. Keep in mind that this assumes a 0% earnings-per-share growth rate. Total returns could be even lower than our estimate if large earnings declines occur moving forward.

As we’ve seen, Chorus Aviation’s track record suggests that it is far from a high-quality business. Sometimes, investing in businesses of questionable quality can still result in excellent investor returns if the businesses are purchased at a valuation indicative of their growth prospects.

This is a strategy that Warren Buffett calls ‘cigar butt investing’ because you’re picking up a discarded cigar (a declining company) for one last puff (some investor profits).

In this case, Chorus Aviation’s valuation (which is higher than many larger peers) and its business quality (subpar at best) do not really allow for a cigar butt investment strategy to be implemented. In general, investing in businesses of the highest quality when purchased at fair or better prices is a better strategy for the majority of investors.

Final Thoughts

Chorus Aviation has two characteristics that immediately stand out to dividend growth investors:

These two factors, while attractive, are not enough to warrant a buy recommendation from Sure Dividend. The company also has exhibited significant earnings volatility that make the stock even less appealing.

Chorus Aviation has implemented multiple dividend cuts in recent years and the company has failed to grow revenue and net income over the long run.

Accordingly, we recommend avoiding this stock and sticking to larger, blue-chip companies.

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