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Understanding Delta’s Dividend Outlook: Might We See an Increase?

Ally Schmidt

Delta's 1Q16 Earnings Are In, but What Do We Make of Them?

(Continued from Prior Part)

Recent dividend payer

Delta Air Lines (DAL) has only recently turned profitable. The company has also only recently (in 2013) started dividend payouts and is one of the few airlines that pay them.

Dividend yield and cash dividend coverage ratio

DAL has a dividend yield of 1.03%. American Airlines (AAL) has a similar dividend yield of 1.07%. Alaska Air Group (ALK) has a dividend yield of 1.3%—the highest in the peer group—while Southwest Airlines (LUV) has one of the lowest dividend yields among industry peers at 0.68%.

DAL’s cash dividend ratio stood at a strong 9.3x at the end of 2015, indicating its ability to sustain dividend payouts. This ratio is calculated as cash flow over dividends paid. It measures the ability of the company to pay dividends. A ratio of less than 1 indicates dividend payouts higher than the company’s cash flow, which may be difficult to sustain in the future.

Can dividend payouts increase?

As predicted in our pre-earnings analysis, Delta paid a $0.14 dividend per share in 1Q16. The company has a history of increasing dividend payouts every four quarters. It increased its dividend by 55% to $0.14 in 3Q15. Thus, we can expect DAL’s dividend to stay constant at $0.14 in 2Q16 as well. The Bloomberg analyst consensus estimate also reflects this, with an expectation of a $0.16 increase for the remaining two quarters of 2016.

DAL makes up 1.97% of the PowerShares BuyBack Achievers Portfolio ETF (PKW).

In the next and final part, we’ll analyze Delta’s valuation multiple.

Continue to Next Part

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