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Delta Rewards Investors with Dividend Hike & New Buyback
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Delta Air Lines, Inc. (DAL - Free Report) recently announced in a regulatory filing that its board of directors has approved a new share repurchase program worth $5 billion. Simultaneously, the airline behemoth increased its quarterly dividend by over 50%. The Atlanta, GA-based carrier has been consistently rewarding its shareholders through dividends since 2013. Notably, this was the fourth consecutive hike of such significant proportions since that time.
Twin Shareholder-friendly Moves
The company raised its quarterly dividend to 30.5 cents per share (annualized $1.22 per share), representing an increase of 50.6% over the previous payout of 20.25 cents per share (annualized 81 cents per share). The new dividend, which has been approved by the company’s board of directors, will be paid to investors from the third quarter of 2017. Based on the closing share price on May 11, the increased dividend translates into a yield of approximately 2.45%.
We believe the dividend hike not only highlights Delta’s commitment to create value for shareholders but also underlines the carrier’s healthy financial condition and confidence in its business, going forward. It is evident from the past records that Delta has a stable dividend payment history.
Additionally, the latest $5 billion share buyback program marks another move by Delta to add value to its stockholders. The new share repurchase plan is expected to be completed by Jun 2020. In fact, Delta has bought back approximately 18% of its shares since 2013.
We are impressed by Delta’s efforts to enhance shareholder wealth through dividends and share buybacks. During the first quarter of 2017, the company returned $349 million to its shareholders through dividends ($149 million) and share buybacks ($200 million). Moving ahead, the company aims to return approximately 70% of free cash flow to its shareholders through 2020.
With Delta having hiked its dividend payout, it remains to be seen whether any of its fellow players in the US airline space like Southwest Airlines (LUV - Free Report) follow suit.
Oil Still Below $50 a Barrel
It is a well-documented fact that airline players, including Delta, have reaped huge benefits from the cheap oil over the past few years. As expenses associated with fuel represent one of the key input costs for airlines, the fall in oil prices has resulted in huge savings for carriers, thereby strengthening their balance sheets. Delta is no exception, having utilized its improved financial position for shareholder-friendly activities (as noted above), reduce its debt levels among other things.
Oil is currently hovering around the $47 a barrel mark. While this represents a strong resurgence from the 12-year low of around $26 a barrel hit in Feb 2016, the fact that the commodity is trading at levels much lower than those ($100+ a barrel) witnessed in mid-2014 still persist. Moreover, it can be made out from Delta’s projection on fuel prices per gallon that the oil prices are unlikely to touch such highs any time soon. The carrier expects the metric to vary in the range of $1.70–$2.00 in the 2017–2020 period.
Capacity
In keeping with its objective of maintaining capacity discipline, the carrier put the cap on 2017 system capacity growth at 1%. Delta believes that passenger unit revenues, which dipped 0.5% year over year in the first quarter of 2017, will improve in 2017.
Delta also said that it is well-on track to achieve its targets in the 2018–2020 timeframe like operating margin in the band of 16%–18% and earnings per share growth in excess of 15%. The company is also making constant efforts to modernize its fleet.
Price Performance
Delta’s shares have struggled in the recent past having underperformed the Transportation- Airline industry on a year-to-date basis. Shares of the company have rallied only 1% so far this year compared with the industry’s gain of 12%.
The carrier’s investor-friendly announcements might give the much-needed lift to the stock.
Shares of Deutsche Lufthansa and Ryanair gained over 41% and 17%, respectively, on a year-to-date basis.
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Delta Rewards Investors with Dividend Hike & New Buyback
Delta Air Lines, Inc. (DAL - Free Report) recently announced in a regulatory filing that its board of directors has approved a new share repurchase program worth $5 billion. Simultaneously, the airline behemoth increased its quarterly dividend by over 50%. The Atlanta, GA-based carrier has been consistently rewarding its shareholders through dividends since 2013. Notably, this was the fourth consecutive hike of such significant proportions since that time.
Twin Shareholder-friendly Moves
The company raised its quarterly dividend to 30.5 cents per share (annualized $1.22 per share), representing an increase of 50.6% over the previous payout of 20.25 cents per share (annualized 81 cents per share). The new dividend, which has been approved by the company’s board of directors, will be paid to investors from the third quarter of 2017. Based on the closing share price on May 11, the increased dividend translates into a yield of approximately 2.45%.
We believe the dividend hike not only highlights Delta’s commitment to create value for shareholders but also underlines the carrier’s healthy financial condition and confidence in its business, going forward. It is evident from the past records that Delta has a stable dividend payment history.
Additionally, the latest $5 billion share buyback program marks another move by Delta to add value to its stockholders. The new share repurchase plan is expected to be completed by Jun 2020. In fact, Delta has bought back approximately 18% of its shares since 2013.
We are impressed by Delta’s efforts to enhance shareholder wealth through dividends and share buybacks. During the first quarter of 2017, the company returned $349 million to its shareholders through dividends ($149 million) and share buybacks ($200 million). Moving ahead, the company aims to return approximately 70% of free cash flow to its shareholders through 2020.
With Delta having hiked its dividend payout, it remains to be seen whether any of its fellow players in the US airline space like Southwest Airlines (LUV - Free Report) follow suit.
Oil Still Below $50 a Barrel
It is a well-documented fact that airline players, including Delta, have reaped huge benefits from the cheap oil over the past few years. As expenses associated with fuel represent one of the key input costs for airlines, the fall in oil prices has resulted in huge savings for carriers, thereby strengthening their balance sheets. Delta is no exception, having utilized its improved financial position for shareholder-friendly activities (as noted above), reduce its debt levels among other things.
Oil is currently hovering around the $47 a barrel mark. While this represents a strong resurgence from the 12-year low of around $26 a barrel hit in Feb 2016, the fact that the commodity is trading at levels much lower than those ($100+ a barrel) witnessed in mid-2014 still persist. Moreover, it can be made out from Delta’s projection on fuel prices per gallon that the oil prices are unlikely to touch such highs any time soon. The carrier expects the metric to vary in the range of $1.70–$2.00 in the 2017–2020 period.
Capacity
In keeping with its objective of maintaining capacity discipline, the carrier put the cap on 2017 system capacity growth at 1%. Delta believes that passenger unit revenues, which dipped 0.5% year over year in the first quarter of 2017, will improve in 2017.
Delta also said that it is well-on track to achieve its targets in the 2018–2020 timeframe like operating margin in the band of 16%–18% and earnings per share growth in excess of 15%. The company is also making constant efforts to modernize its fleet.
Price Performance
Delta’s shares have struggled in the recent past having underperformed the Transportation- Airline industry on a year-to-date basis. Shares of the company have rallied only 1% so far this year compared with the industry’s gain of 12%.
The carrier’s investor-friendly announcements might give the much-needed lift to the stock.
Zacks Rank & Stocks to Consider
Delta Air Lines currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space include Deutsche Lufthansa (DLAKY - Free Report) and Ryanair Holdings (RYAAY - Free Report) , which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Deutsche Lufthansa and Ryanair gained over 41% and 17%, respectively, on a year-to-date basis.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>