Cargojet's Dividend Powerhouse: Sustainable Returns in a Resilient Air Cargo Giant

Cargojet Inc. (TSX:CJT) has emerged as a paragon of dividend discipline and balance sheet strength in the air cargo sector, driven by robust cash flows from record charter demand and operational excellence. With an 11.25% dividend hike in Q3 2024, a $115 million hybrid debenture redemption, and a renewed Normal Course Issuer Bid (NCIB) signaling undervaluation, investors are presented with a rare opportunity to capitalize on a company primed for sustainable shareholder returns. Let's dissect why now is the time to act.

The Dividend Hike: A Signal of Confidence

Cargojet's Q3 2024 dividend increase to $0.35 per share—a 11.25% jump from the prior quarter—is no accident. This marks the latest in a series of strategic dividend hikes, underscoring management's commitment to returning capital to shareholders. Co-CEOs Jamie Porteous and Pauline Dhillon explicitly tied the increase to the company's financial confidence, with dividend growth aligned to its capital allocation strategy.

What makes this compelling? Unlike many peers, Cargojet's dividend hikes are not speculative—they are backed by rock-solid cash flows. The company's $160 million China-Canada charter deal (a three-year agreement with Great Vision HK Express) has turbocharged revenue, contributing to a record $1 billion in annual revenue in 2024. This deal alone boosted all-in charter revenue by 58.8% year-over-year, proving Cargojet's ability to monetize high-margin international demand.

Debt Redemption: Strengthening the Balance Sheet

In December 2024, Cargojet will redeem its $115 million hybrid debentures, a move that will significantly reduce long-term debt and free up capital for reinvestment. By drawing on its revolving credit facility to fund this redemption, the company demonstrates its liquidity strength and ability to manage debt efficiently. Post-redemption, Cargojet's debt-to-equity ratio will drop, positioning it as one of the best-capitalized players in the air cargo sector.

This isn't just a balance sheet cleanup—it's a strategic reset. With lower interest burdens and a leaner capital structure, Cargojet can allocate more cash to dividends and share buybacks. The timing is also advantageous: the redemption aligns with Cargojet's record cash flow from operations, which hit $108.4 million in 2024, up 200% from 2023.

NCIB Renewal: Management's Bet on Undervaluation

Cargojet's renewed NCIB, allowing the repurchase of up to 1.5 million shares (9.46% of outstanding shares), is a bold vote of confidence in its stock's value. Management believes the shares are undervalued, and they're willing to back this thesis with capital.

This isn't empty talk. Under the previous NCIB, Cargojet repurchased 1.35 million shares at an average price of $116.41—a price below its current trading range. With the renewed NCIB set to run through November 2025, shareholders can expect disciplined buying that will reduce dilution and boost per-share metrics.

The Cash Flow Engine: Why It All Works

The linchpin of Cargojet's success is its China-Canada charter deal, which has become the company's growth flywheel. By leveraging its fleet of 41 aircraft—including newly converted Boeing 767-300F freighters—Cargojet is maximizing asset utilization. The deal's revenue stream, combined with strong domestic demand, has enabled the company to:
- Grow net earnings by 200% in 2024 to $108.4 million.
- Increase flight hours by 16% in Q4 2024 to meet soaring e-commerce cargo needs.
- Maintain a 99% on-time performance record, a critical advantage in premium air cargo.

This operational excellence ensures that cash flows remain resilient, even as Cargojet invests in fleet modernization and international expansion.

Why Invest Now?

The pieces are all in place for sustained shareholder value:
1. Sustainable Dividends: The 11.25% hike in Q3 2024 is just the start. With a dividend yield of ~3.5% and a payout ratio well within safe limits, further increases are likely as cash flows grow.
2. Debt Reduction: The $115 million debenture redemption removes overhang, freeing capital for returns.
3. Undervalued Shares: The NCIB and dividend yield signal that shares are cheap relative to their earnings power.

Final Call to Action

Cargojet is not just a dividend story—it's a total return machine. With a fortress balance sheet, a strategic debt redemption, and a cash flow engine fueled by its China-Canada deal, the company is set to outperform in 2025 and beyond. Investors who act now can lock in a compelling yield while benefiting from share buybacks and dividend growth.

The question isn't whether to invest—it's why you're waiting. Cargojet's combination of operational resilience, capital discipline, and growth catalysts makes it a rare gem in today's market. Don't miss the lift-off.

Disclosure: This analysis is for informational purposes only and should not be construed as investment advice. Always conduct your own research or consult a financial advisor.