Southwest Hikes Shareholder' Returns - Analyst Blog

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The largest U.S. low-cost carrier Southwest Airlines Co. ( LUV ) 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 of 0.49%.

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 ( JBLU ) and Spirit Airlines Inc. ( SAVE ).

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 term.

We are currently maintaining our long term Neutral rating on the stock with the Zacks # 3 (Hold) Rank.


 
JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report
 
SOUTHWEST AIR (LUV): Free Stock Analysis Report
 
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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: JBLU , LUV , SAVE

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