Within a year of enhancing its shareholders' return,
Delta Airlines Inc.
) 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
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
Delta is miles ahead of the big airline companies in terms of
dividend payment with
Southwest Airlines Co.
) coming in at a close second with a quarterly dividend of 4 cents.
Apart from these two carriers, peers like
United Continental Holdings Inc.
JetBlue Airways Corp.
) 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 S&P 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
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