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Southwest (LUV) Hikes Dividend, Announces New Buyback Plan

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Southwest Airlines’ (LUV - Free Report) board of directors recently decided to increase its quarterly dividend payout by 12.5% to 18 cents per share (annualized 72 cents per share). The first instalment of the raised dividend will be paid on Jun 26, 2019, to its shareholders of record as on Jun 5.

The latest move highlights Southwest Airlines’ commitment to create value for shareholders and underscores the company’s strong financial condition as well as bright prospects. Moreover, a look at past records reveals Southwest Airlines’ stable dividend payment history. Notably, this marks the 171st consecutive quarter of dividend payment by this low-cost carrier.

The dividend yield based on the new payout and the May 15’s closing price is approximately 1.4%. In fact, the company’s dividend per share has been witnessing a positive trend for the last five years.

Additionally, the company’s board of directors approved a new share buyback program worth $2 billion. The new program will be operational after the completion of the existing $2-billion share repurchase plan, authorized in May 2018. Currently, $400 million remains under the existing plan.

Furthermore, Southwest Airlines’ efforts to enhance shareholder wealth through dividends and share buybacks are impressive. During the first quarter of 2019, the company returned $678 million to its shareholders through dividends ($178 million) and share buybacks ($500 million). The company has returned in excess of $11 billion to its shareholders via dividends and share buybacks since 2010.

Dividend Hikes: Not Uncommon for Airlines

Apart from Southwest Airlines, carrying a Zacks Rank #4 (Sell), other airline companies like SkyWest (SKYW - Free Report) and Alaska Air Group (ALK - Free Report) have raised their dividend payouts this year. The current tax law, which came into force in December 2017, has proved conducive to airlines as far as investor-oriented activities like dividend payments are concerned.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The significant reduction in corporate tax rate under the current law has boosted cash flow as well as earnings of transportation stocks. Owing to the significant cuts in tax bills, more cash remains in the hands of these companies to fund capital expenditures, buybacks and dividends among others.

Given this backdrop, we will not be surprised if another major airline player, Delta Air Lines (DAL - Free Report) , walks in the same path and hikes its quarterly dividend in the coming days.

As investors prefer an income generating stock, a high dividend yielding one is much coveted. Needless to say that investors are always on the lookout for companies with a track record of consistent and incremental dividend payments.

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