It is a well-known fact that companies in the airline space have been facing challenges due to multiple headwinds. Stocks in this space have been hurt by high costs (labor and fuel), disruptions caused by the recent hurricanes, capacity overexpansion, among others.
Evidently, United Continental Holdings’ (UAL - Free Report) third-quarter pre-tax income was affected to the tune of approximately $185 million due to the storms. As a result, the company cancelled 8,300 flights in the same period.
Additionally, the massacre (described as the deadliest mass shooting in modern U.S. history) in Las Vegas on Oct 1, 2017, pushed back airline stocks, particularly those with exposure to Las Vegas’ McCarran International Airport. For instance, bookings at Allegiant Travel Company (ALGT - Free Report) for the fourth quarter have been hurt. The company now expects total revenue per available seat miles (TRASM) to decline between 0.5% and 3% mainly due to Irma and the Las Vegas mass shooting incident.
In view of the above struggles, it is of little surprise that the Zacks Airline industry has underperformed the broader market year to date. While the S&P 500 Index gained 15.6%, the industry rallied 11.4%.
Warren Buffett Still Rooting for Airlines – A Positive Sign
Despite the sector’s recent struggles, Warren Buffett — one of the most revered investors of all time — still continues to support the airline stocks. According to a third-quarter filing by Berkshire Hathaway, Buffett still has stakes in American Airlines Group (AAL - Free Report) , Delta Air Lines (DAL - Free Report) , Southwest Airlines (LUV - Free Report) and United Continental. Initially Buffett had shown interest in the sector last year, after staying away from it for a long time. In fact, his last investment in airlines was in the 1980s.
Buffett’s investing style has always remained simple: buy shares in great companies and hold them for a significant period of time. These companies have reliable business models that have stood the test of time.
As one of the greatest investors ever is still showing faith in airlines despite the recent turbulence, it is obvious that airline companies fit into his scheme of long-term sustainability. Therefore, it can be safely concluded that all is not lost for the sector and one should remain focused on them.
Dividend-Paying Stocks to the Rescue
Companies with strong fundamentals are generally payers of dividends. Such companies are financially stable and mature and can even generate steady cash flow irrespective of market and sector conditions.
In fact, dividend stocks are a safe bet to create wealth as the payouts generally act as a hedge against uncertainty and simultaneously provide downside protection by offering sizable yields on a regular basis.
Three Airline Stocks in Focus
In view of the virtues associated with dividend paying companies, we have zeroed in on three airline stocks, which have a strong dividend paying history. Also, they have raised their dividend payouts in the last 12 months.
Delta Air Lines is a leading provider of scheduled air transportation for passengers and cargo in the United States and around the world. The company, based in Atlanta, GA, currently carries a Zacks Rank #3 (Hold) and has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company has a dividend yield of 2.45%. Also, Delta has been consistently rewarding its shareholders through dividends since 2013. Notably, it has hiked dividend pay-outs significantly for four consecutive years since then. The latest hike was announced in May 2017, when the company’s board of directors approved a 50.6% dividend hike in its quarterly cash dividend to 30.5 cents per share.
Southwest Airlines with a Zacks Rank #3, is based in Dallas, TX. In May 2017, this low-cost carrier raised its cash quarterly dividend to 12.5 cents per share, reflecting an increase of 25% over the previous quarterly payout of 10 cents per share. The company has a dividend yield of 0.91%. Moreover, its past records substantiate the fact that Southwest Airlines has a stable dividend payment history. The company with a Value Score of B, has made dividend payments for more than 160 consecutive quarters.
SkyWest Inc. (SKYW - Free Report) operates a regional airline in the United States through its subsidiaries. The company has a Zacks Rank #2 (Buy) and a Value Score of B. The carrier, with a dividend yield of 0.64%, has paid dividends for more than 80 quarters in succession. In February 2017, the company’s board of directors approved a 60% dividend hike in its quarterly cash dividend to 8 cents per share.
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