Should Alaska Air Group, Inc. (NYSE:ALK) Be Part Of Your Portfolio?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Alaska Air Group, Inc. (NYSE:ALK) has paid a dividend to shareholders. It currently yields 2.0%. Does Alaska Air Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Alaska Air Group
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it paying an annual yield above 75% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has dividend per share risen in the past couple of years?
Does earnings amply cover its dividend payments?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does Alaska Air Group fit our criteria?
The current trailing twelve-month payout ratio for the stock is 19%, which means that the dividend is covered by earnings. Going forward, analysts expect ALK’s payout to remain around the same level at 20% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.1%. In addition to this, EPS is forecasted to fall to $5.97 in the upcoming year.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Alaska Air Group as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Alaska Air Group has a yield of 2.0%, which is on the low-side for Airlines stocks.
Next Steps:
Taking all the above into account, Alaska Air Group is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three fundamental factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for ALK’s future growth? Take a look at our free research report of analyst consensus for ALK’s outlook.
Valuation: What is ALK worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ALK is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
