If I’d invested £500 in easyjet shares 3 years ago, here’s what I’d have now

Think back three years. The pandemic in China is starting to make headlines, but there are some signs of a storm to come for airlines like easyjet (LSE: EZJ). So what happens if I buy easyjet shares for my portfolio?

Damage value

The answer is that even now, I will have a huge paper loss.

Shares are still 60% lower than they were three years ago. So an investment of £500 will be worth only £200. That’s a big loss.

Since then, the airline industry has been mixed. However, of late, the enthusiasm of passengers and investors has returned. Indeed, over the past year, easyjet shares have risen by 53%.

If I had bought them a year ago that would have been music to my ears. But if I had reinvested in February 2020, I would still have suffered a significant loss of value in my holdings.

Drought dividend

Before the pandemic, easyjet was a popular income option for many investors. Indeed, a strong dividend could be one of the things that attracts me in February 2020.

At the end of 2019, the company has proposed a dividend per share of 44p (about 8.7% of easyjet’s current share price). When a dividend is declared, there is an ex-dividend date and a payment date. In that case, the ex-dividend date is February 28, 2020. So, having bought the shares three years ago, I would have had time to pay.

The payment date is set for March 20. Four days earlier, the company updated the market on the rapidly developing pandemic. It reminds shareholders that “easyJet maintains a strong balance sheet including a cash balance of £1.6bn, an undrawn $500m Revolving Credit Facility (and) an unencumbered aircraft worth over £4bn“. Before this month came out, easyjet grounded its entire fleet.

However, unlike some companies at the time, it did not cancel the declared dividend. So the 39 £500 shares I would have bought three years ago would have paid a dividend of around £17.

If I still hold them now, I will be entitled to any dividends if the airline decides to restart in the future.

Looking forward

If I have bought shares then, do I still have, hoping for the recovery of share prices and the resumption of dividends?

I don’t know. One common mistake among investors is to try to recoup their sunk costs by holding onto stocks for years, hoping that they will recover in price.

But in easyjet’s case, it may be coming. Passenger numbers are recovering strongly and I expect continued demand. But the business still loses money. The headline loss before tax in the latest quarter was £133m. The former’s balance sheet is now grumbling with net debt of £1.1bn.

So, despite the upside potential from its strong market position and lean cost base, I wouldn’t buy easyjet shares for my current portfolio. I’m so glad I didn’t buy it three years ago!