Its
Southwest Airlines Co.
‘s (
LUV
) turn now to enhance its shareholders’ wealth just days after
rival
Delta Airlines Inc.
(
DAL
) increased its own. The airline’s board of directors has approved
a $1 billion share buyback program along with a 50% hike in its
quarterly dividend to 6 cents per share from the prior-paid 4
cents.
The $1 billion share repurchase authorization includes a $200
million buyback program to be completed on an accelerated basis.
Meanwhile, this is the 151st consecutive dividend payout for
Southwest Airlines, which translates into an annualized dividend of
24 cents and a dividend yield of around 1%. The hiked dividend will
be paid on Jun 25, 2014 to shareholders of record on Jun 4,
2014.
Recently, the company completed its previous $1.5 billion share
repurchase program, which also included a $200 million accelerated
share buyback launched in Feb 2014. During the first quarter of
2014, Southwest Airlines paid $56 million in dividends and
repurchased 12 million shares for an approximate amount of $315.0
million.
This latest bid to enhance shareholders’ return depicts
Southwest Airlines’ confidence in continuing its sturdy financial
performance, already reflected in the impressive first-quarter
results. To us, the increased shareholders’ return does not come as
a surprise. The company’s bottom line has managed to beat the Zacks
Consensus Estimate in the past three quarters with an average
surprise of 8.51%.
Southwest Airlines is the second major air transportation
carrier after Delta Airlines in terms of dividend payment as other
traditional carriers like
United Continental Holdings Inc.
(
UAL
) and
JetBlue Airways Corporation
(
JBLU
) do not distribute dividends at present.
Recently, Delta Airlines approved a $2 billion share repurchase
program that is expected to complete within 2016, in addition to
raising its 6 cents quarterly dividend by 50% to 9 cents per share
effective from the third quarter of 2014. The carrier plans to
return $2.75 billion to shareholders by the end of 2016.
Southwest Airlines has been leveraging from an improving U.S.
economy, which in turn is propelling stronger demand within the
domestic market. We believe the company is expected to benefit
further from fleet restructuring, introduction of international
services, repeal of the Wright amendment and the expected
completion of the AirTran integration.
Moreover, the slot wins and subsequent expansion of operations
from the Reagan and LaGuardia airports should boost its future
prospects. We thus remain bullish on the stock with a Zacks Rank #1
(Strong Buy).
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