In our view, Amadeus is a high-quality company that has experienced adverse market conditions but has used those challenges to strengthen its business, and ultimately to return cash to shareholders.

The company’s current dividend payout lies at a relatively low level but is expected to deliver strong growth well in excess of inflation this year, continuing at high levels thereafter.

An improving backdrop

In common with the rest of the global travel and tourism sector, Amadeus experienced challenges during and after the Covid-19 pandemic. Nevertheless, Amadeus used the crisis to its advantage, taking the opportunity to reduce costs from the business, cancelling its dividend and undertaking a capital raise to strengthen its financial position and improve liquidity. The company also invested heavily in its products and services and, consequently, emerged from the pandemic stronger and ready to gain market share.

Activity in the travel industry has not yet fully recovered and remains below pre-pandemic levels. However, Amadeus is well positioned to benefit from further recovery in the sector, underpinned by a robust balance sheet and strong cash generation.

A reinstated dividend that’s set to grow

We invested in Amadeus in January 2023. It has performed well and remains a holding today. The company paid a dividend in 2023 – its first since 2019. We believe Amadeus is positioned to increase its payout rapidly and deliver powerful growth in the longer term. The company also announced a share buyback programme in June. This is a positive signal in terms of its balance sheet, in our view. As cash flow generation improves and the balance sheet further de-leverages, Amadeus may be able to buy back more shares over time.

We believe companies that demonstrate a disciplined approach to capital allocation by returning some of their profits to shareholders are likely to deliver good risk-adjusted returns with lower levels of volatility.

Traditional income funds tend to focus on companies with high dividend yields; however, this strategy can create unintended biases in style, sector or quality. Although we do invest in companies that offer a sustainable premium yield, we also allocate capital to companies with lower yields that are already growing, or that demonstrate the potential for rapid growth over the long term.

The dividend upgrade perspective

Amadeus is an interesting example of this approach, in which we focus on a stock from a dividend upgrade perspective, rather than on a stock that already offers a high dividend yield.

The dividend upgrade theme makes up around 15% of our Europe ex UK income equity fund portfolio , compared with 50% high dividend and 35% dividend growth. The result is a portfolio that is balanced between value and growth and is constructed with the aim of delivering an attractive total return.

Visit our Investing for Income campaign page where you can read our other case studies and find out more about our total return mindset. 

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.