It has not been a pleasant 30 days for shareholders of Flight Centre Travel Group Ltd (ASX: FLT) who have seen its share price drop by over 10%. This means the shares are in negative territory in 2016 even when factoring in the fully franked 4.1% dividend.
The decline appears to stem from the disappointing outlook painted by both Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH). Both airlines cut capacity in the quarter ahead due to softness in demand. But I wouldn't let this put you off investing in this great company.
The UN World Tourism Organisation has forecast worldwide tourist arrivals to grow by 4% in 2016 to a record 1.25 billion. Due to the fact the company has extensive operations overseas, I believe this should more than offset a few months of soft demand for domestic travel in Australia.
Additionally, its growing corporate travel segment has been battling it out with Corporate Travel Management Ltd (ASX: CTD) for market share. The company's corporate segment generated 35% of its global turnover in its most recent half-year results, compared to just 27% five years ago.
It also expanded its corporate presence in Europe with the acquisition of Dutch company Business Travel Development. Although a relatively small outfit, I believe Flight Centre's management has what it takes to grow it into a meaningful contributor to the overall business.
Whilst I never like to see share prices come down, the drop in Flight Centre's share price does have a couple of positives. It is trading at 14x earnings, which is lower than the market's average of 16x earnings and this also means that the shares are paying a fully franked estimated FY 2016 dividend of 4.3%.
The company has grown its dividend at an average of almost 13% per annum over the last 10 years. Although this is expected to slow to around 6% per annum for the next couple of years, I believe it represents a solid dividend with long-term growth prospects.
In my opinion the recent decline in Flight Centre's share price represents a great opportunity to start a long-term buy and hold investment. In the last 10 years shareholders have been rewarded handsomely for holding its shares and I expect this to prove to be the case over the next 10 years.
