The Qantas Airways Limited (ASX: QAN) share price is in the dumps on Thursday despite the company announcing another massive on-market share buyback. Meanwhile, passive income investors might be disappointed by the lack of dividend from the travel giant.

The S&P/ASX 200 Index (ASX: XJO) airline operator posted a $1.4 billion profit for the first half of financial year 2023 this morning, as The Motley Fool Australia reported earlier.

Right now, the Qantas share price is tumbling 6.03% to trade at $6.08.

Let’s take a closer look at the airline’s newly announced $500 million buyback and when investors might expect a dividend from the stock.

Qantas shares slump on buyback and lack of dividend

Qantas will restart buying its shares on market next month after snapping up $400 million worth of stock last half for an average price of $5.78 apiece.

It comes after investors forked out more than $1 billion to help fund the airline’s recovery in 2020, as CEO Alan Joyce commented today. He added:

[The first half profit] is the recovery our people, our shareholders – and in many respects, our customers – have been waiting for. Because this result isn’t just about a single number. Ultimately, it’s about getting back to our best by reinvesting in the national carrier.

Of course, while passive income investors would likely prefer a cash dividend over a share buyback, both ultimately benefit shareholders. That’s because reducing the number of shares on market bolsters the value of those remaining.

And news of the capital return likely hasn’t surprised eagled-eyed market watchers.

Broker Macquarie previously tipped Qantas to buy back up to $800 million worth of its shares amid a faster-than-expected recovery.

Meanwhile, Goldman Sachs was forecasting the airline to announce another $400 million buyback and declare $90 million of dividends today. It’s still tipping the stock to return to dividend this year.

The broker dubbed today’s result “strong”. It rates Qantas shares a buy with an $8.20 12-month price target – a potential 35% upside.

Today’s tumble hasn’t been enough to see the Qantas share price in the 2023 red. The stock is still up 3% year to date and 14% over the last 12 months.

For comparison, the ASX 200 has lifted 5% this year and 1% since this time last year.

The post Why is Qantas buying back shares instead of paying dividends? appeared first on The Motley Fool Australia.

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More reading

• Qantas share price falls 4% despite huge profits and major share buy-back
• Qantas share price on watch amid $1.4b half-year profit
• Earnings preview: Here are the ASX shares reporting on Thursday
• 5 things to watch on the ASX 200 on Thursday
• Own Qantas shares? Here’s how the ASX 200 airline is investing $100 million

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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