Low cost U.S carrier Southwest Airlines Co.LUV recently declared the approval of a new share repurchase program worth $1.5 billion by its board. Simultaneously, the airline operator hiked its quarterly dividend by 25%.
Southwest Airlines raised its quarterly dividend to 7.5 cents per share (30 cents per share annualized), representing an increase of 25% over the previous payout of 6 cents per share. This will mark the company's 155th consecutive dividend payout, to be paid on Jun 24, 2015, to shareholders of record at the close of business on Jun 3, 2015.
We believe that the dividend hike not only reflects Southwest Airlines' commitment toward enhancing shareholders value but also highlights the carrier's healthy financial condition and encouraging prospects.
In order to boost shareholders' wealth to the maximum, Southwest Airlines will be executing a fresh $1.5 billion buyback. At first the company plans to repurchase $300 million shares under an accelerated program.
Notably, this new buyback follows closely on the heels of the recent completion of the company's $1 billion share repurchase plan.
The massive savings generated from reduced fuel costs is translating into massive benefits for shareholders of airline companies. Recently, airline behemoth Delta Air Lines Inc. DAL declared a large $5 billion buyback program along with a 50% hike in dividend.
We note that airline stocks have largely benefited from plunging oil prices as fuel costs account for nearly 30% of their operating expenses. Crude prices have remained weak over the recent past owing to an over-supplied oil market, especially in the wake of lackluster global demand.
Despite the recent rally, crude prices have been hovering around the $60 a barrel mark. This represents a significant decline from approximately $105 per barrel witnessed in July last year. In fact, oil prices have been fluctuating lately after hitting a 6-year low of under $44 in Mar 2015.
Stocks to Consider
Southwest Airlines carries a Zacks Rank #3 (Hold). Better-ranked stocks in the transportation sector include JetBlue Airways Corp. JBLU and SkyWest Inc. SKYW . SkyWest currently sports a Zacks Rank #1 (Strong Buy) while JetBlue has a Zacks Rank #2 (Buy).
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