The largest U.S. low-cost carrier
Southwest Airlines Co.
) plans to double shareholders' returns in the form of dividends
and share buybacks.
Southwest boosted its quarterly dividend 122% to one cent per
share. This marks the first increase in nearly a decade. The
increased dividend will be payable on June 20 to shareholders of
record as of June 6.
Southwest has not raised its dividends for the past several
years. The company paid approximately $14 million and $13 million
in dividends in 2011 and 2010, respectively. The new dividend will
equate to 4 cents per share annually, representing a dividend yield
Southwest is the first low-cost carrier that pays dividend to
its shareholders, and thus supports its strong position against its
major rivals -
JetBlue Airways Corporation
Spirit Airlines Inc.
Southwest also increased its share repurchase authorization to
$1 billion from $500 million. In August last year, Southwest
Airlines had resumed its $500 million stock repurchase program
highlighting its strong liquidity and cash flow position.
As of May 15, the company repurchased approximately $325 million
of shares under its existing program. With the rise, the company
will be able to repurchase $675 million of shares (new $500 million
plus the remaining $175 million) going forward.
Over the last five years, Southwest repurchased 159 million
shares worth $2.2 billion.
Both the actions strongly reflect the company's commitment to
enhance shareholders' value. Southwest Airlines expects to generate
strong profitability by improving revenue and reducing costs. Fare
hikes, hedging strategies, cost-cutting measures, network
optimization and All-New Rapid Rewards are expected to offset
rising fuel prices, the company's major threat.
Southwest is also improving its services as well as introducing
new products, which are enhancing its value and profitability. The
AirTran merger will also provide additional synergies when fully
integrated with the company's fleet.
Though these initiatives might increase operating costs in the
short term, these are expected to improve profitability in the long
We are currently maintaining our long term Neutral rating on the
stock with the Zacks # 3 (Hold) Rank.
JETBLUE AIRWAYS (JBLU): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis Report
SPIRIT AIRLINES (SAVE): Free Stock Analysis
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