TORONTO (Reuters) - Shares of Chorus Aviation Inc CHRb.TO jumped nearly 8 percent on Tuesday after the Canadian regional carrier increased its dividend by 50 percent in response to a favorable rate ruling by an arbitration panel last month.
Chorus, a contract carrier for Canada's biggest airline, Air Canada ACb.TO, said it will hike its dividend to 45 Canadian cents per share annualized from 30 Canadian cents per share.
The higher dividend still allows it to pay down debt, while funding cost-cutting initiatives and capital projects, Chief Executive Joseph Randell said in a statement.
RBC Capital Markets analyst Walter Spracklin said in a note that with the divided increase approved, "we believe this will provide the confirmation that there is indeed a sustainable improved cash flow profile."
Chorus stock soared after the company said on November 26 that an arbitration panel had ruled it would not need to change its 12.5 percent markup, above the 7 percent to 9.5 percent proposed by Air Canada, during more than a year of arbitration.
The rate refers to the premium that Chorus is paid for its controllable costs in operating flights for Air Canada.
Chorus operates about 120 aircraft for Air Canada, under the Jazz Aviation brand, flying to destinations in off-peak hours throughout Canada and into the United States.
The operating agreement between the two companies expires in 2020, but the two parties will begin talks in 2014 to set rates for the period from 2015 to 2017, Air Canada has said.
Chorus shares peaked at C$4.02 on the Toronto Stock Exchange on Tuesday morning, before edging down to C$3.95, a 5.9 percent gain.
Reporting by Susan Taylor; Editing by Grant McCool