Delta Air Lines Inc. (DAL - Analyst Report) , the largest airline company in the U.S., is set to restart its quarterly dividend and has authorised a share repurchase program, over a period of three years. The move is believed to be an attempt by Delta to win back investors’ confidence, who have suffered due to the slump in the airline industry.
The airline giant has authorised a share repurchase program of $500 million and will pay a quarterly dividend of 6 cents per share on Sep 10 to the shareholders of record on Aug 9. Delta last paid a dividend in 2003. Together, the dividend and stock buyback program will return $1 billion to the shareholders of Delta. The news showed a favourable impact on the market, which lifted the stock price by 3.21% in the Wednesday trade in NASDAQ to arrive at $18.66.
Delta has sufficient cash to carry out this program. The company exited the first quarter of fiscal 2013 with $3.64 billion in cash and short-term investments and $457 million in free cash flow.
After Southwest Corporation (LUV - Analyst Report) , which pays a quarterly dividend of a penny, Delta will be second among the big airline companies in the U.S. to pay a dividend. Beside these two company’s other major airlines like United Continental Holdings Inc. (UAL - Analyst Report) and JetBlue Airways Corporation. (JBLU - Analyst Report) , do not pay dividends.
Delta has made several investments to improve operating efficiencies and customer experience, which aided the company to re-initiate shareholders’ return. Further, the Atlanta-based company has also considerably reduced its debt in the last 5 years, which reflects its balance sheet strength.
Recently, Delta reported better-than-expected first-quarter 2013 financial results, where the bottomline beat the Zacks Consensus Estimate by 3 cents. Strategic expansion measures, operational efficiency and better products and services aided the company to deliver an impressive performance.
We believe that these initiatives coupled with the share repurchase/dividend plan will allow Delta to capture back investors’ confidence. Share repurchase will boost the earnings, while regular dividend is expected to push the stock prices higher. However, a high debt of around $12.31 billion at the end of the first quarter of 2013 remains a major headwind for Delta.
Currently, Delta carries a Zacks Rank #3 (Hold).