Within a year of enhancing its shareholders’ return, Delta Airlines Inc. (DAL) has again hiked its dividend and has authorized a new share repurchase program to gain investors’ confidence. The news pushed the stock higher by 0.4% on Tuesday trade on NYSE.
The airline giant’s board of directors has approved a $2 billion share buyback program that is expected to complete in 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. Delta had 853 million outstanding shares at the end of Mar 31, 2014.
Delta returned $176 million to its shareholders in the first quarter of 2014 through its dividend and share repurchase activity. The company has sufficient cash to carry out this new program and exited the first quarter with $3.7 billion in cash and short-term investments and $390.0 million in free cash flow.
This latest bid to enhance shareholders’ return depicts Delta’s confidence in continuing its sturdy financial performance, already reflected in the impressive first-quarter results. Despite a harsh winter forcing Delta to cancel 17,000 flights, the carrier managed to beat the Zacks Consensus Estimate on both the top and bottom line in the recently declared first-quarter results.
In May 2013, Delta recommenced its quarterly dividend after a gap of 10 years along with the initiation of a $500 million share repurchase program. The Atlanta-based carrier is on course to return $700 million to its shareholders including the $500 million buyback through June 2014, and is poised two years ahead of its schedule.
Delta is miles ahead of the big airline companies in terms of dividend payment with Southwest Airlines Co. (LUV) coming in at a close second with a quarterly dividend of 4 cents. Apart from these two carriers, peers like United Continental Holdings Inc. (UAL) and JetBlue Airways Corp. (JBLU) do not pay dividends at present.
For us, the increased shareholders’ return does not come as a surprise. The company has managed to beat the Zacks estimates in the past four quarters and have even managed to regain its position among the SP 500 within this time. Delta has even strengthened its balance sheet by reducing its debt by $2.6 billion since the end of 2012. The carrier also expects to have only $5 billion in adjusted net debt by the end of 2016.
Delta has been leveraging from an improving U.S. economy, which in turn is propelling stronger demand within the domestic market. We believe capacity discipline, route expansion, cost control measures and customer-focused initiatives are boosting its performance along with its trans-Atlantic tie up with Virgin Atlantic, which is picking up well in the lucrative New York-London travel route. We thus remain bullish on Delta with a Zacks Rank #1 (Strong Buy).
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