Yahoo Finance Southwest Airlines Up on Dividend Hike & New Buyback Plan
Investors in the airline space are ecstatic with major sector participants raising dividend payouts/sanctioning new buybacks. Close on the heels of Delta Air Lines’ DAL quarterly dividend hike, low-cost carrier Southwest Airlines LUV announced a dividend raise along with a new share repurchase program worth $2 billion. The announcement of the shareholder-friendly activities found favor with investors, driving the shares of the carrier by 1.66% to close at $42.90 on May 18.
Dividend
The Dallas-based carrier raised its cash quarterly dividend to 10 cents per share (40 cents per share annualized), representing an increase of 33.33% over the previous quarterly payout of 7.5 cents per share (30 cents per share annualized).
We believe that the dividend hike not only highlights Southwest Airlines’ commitment to create value for shareholders but also underlines the carrier’s healthy financial condition and business strength. It is evident from past records that Southwest Airlines has a stable dividend payment history. The new dividend will be paid on Jun 29, 2016, to shareholders of record as of Jun 8. This will mark the 159th consecutive quarter of dividend payment for Southwest Airlines. Based on the closing share price on May 17, the increased dividend translates into a yield of approximately 0.95%.
Share Repurchase
The latest $5 billion share buyback program marks another stockholder-friendly move by Southwest Airlines. At first, the company plans to repurchase $500 million shares under an accelerated program. The new buyback scheme will replace the $1.5 billion repurchase plan which was completed recently. The carrier bought back approximately 37.3 million shares under the $1.5 billion plan.
We are impressed by Southwest Airlines’ efforts to enhance shareholder wealth through dividends and share buybacks. During the first quarter of 2016, the company returned $596 million to its shareholders through buybacks and dividend payments.
Fuel Savings: Shareholders’ Gain
The massive savings from reduced fuel costs have boosted finances for airline companies, which has translated into significant benefits for shareholders.
Southwest Airlines has been no exception. During the first quarter of 2016, the carrier reported better-than-expected earnings aided by low fuel costs. During the quarter, fuel price (economic) declined 11% to $1.78 per gallon. For 2016, the carrier expects fuel price per gallon in the band of $1.85 to $1.90, representing a significant decline from the 2015 figure of $2.07 per gallon.
Zacks Rank & Key Picks
Southwest Airlines carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space include Air France-KLM SA AFLYY and SkyWest Inc. SKYW. Both stocks sport a Zacks Rank #1 (Strong Buy).
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SOUTHWEST AIR (LUV): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
SKYWEST INC (SKYW): Free Stock Analysis Report
AIR FRANCE-ADR (AFLYY): Free Stock Analysis Report
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