Should You Buy TUI Travel PLC?

In my opinion, travel operator TUI Travel(LSE: TT) -- whose established brands include Thomson and First Choice -- provides great investment potential through robust earnings growth and rising shareholder payouts.

February's first-quarter update revealed the company had made a promising start to the current financial year. And I expect the firm's exclusive package portfolio to continue delivering growth in future years.

The sun always shines on TT

Last month TUI Travel said its summer 2013 bookings in the UK and Nordic regions were up 9% and 10% respectively on the previous year, with average holiday prices and margins in key markets higher than in 2011. The operator also noted it had already sold almost a third of its mainstream summer holiday packages.

The company continues to grab market share in Britain, and boosted its share of exclusive holiday bookings by 15% in the October-December period. Around nine-tenths of domestic sales now come from direct distribution.

As well, TUI Travel is making inroads with its online sales platform. Within the UK, online transactions accounted for 38% of all booked summer holidays, up a percentage point on the year, while in the Nordic states the proportion rose two percentage points to 66%. Rising internet sales bode well for future growth.

Solid dividends at decent prices

Analysts expect TUI Travel to maintain earnings per share growth in the medium term -- a 7% rise to 28p for the year ending September 2013 is predicted, with a 9% advance next year to 30p.

In addition, the firm offers a dividend yield in excess of the 3.5% average for the FTSE 100. According to broker estimates, yields of 4.1% and 4.5% are due for 2013 and 2014 respectively.

TUI Travel has continued to raise its annual dividend, even when earnings have come under pressure in recent years. A payout of 11.7p per share for 2012 is projected to rise to 12.6p and 13.6p per share for this year and next. And these payments are well protected, with anticipated coverage of 2.2 times.

The shares of the travel specialist currently change hands on P/E ratios of 11.5 and 10.6 for 2013 and 2014 respectively, which compares favourably to an average forward earnings multiple of 14.8 for the wider travel and leisure sector.

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