Southwest Airlines to Boost Shareholder Wealth - Analyst Blog

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DAL , JBLU , LUV , UAL

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