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What to Know before American Airlines’ 1Q17 Earnings Release

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Part 5
What to Know before American Airlines’ 1Q17 Earnings Release PART 5 OF 6

Will American Airlines Increase Its Dividend Payouts?

Dividends

American Airlines (AAL) started paying dividends in mid-2014, joining the ranks of Delta Air Lines (DAL), Southwest Airlines (LUV), and Alaska Air Group (ALK), the few dividend-paying airlines.

Huge fuel savings since 2014 have made airlines profitable, making dividend payouts a possibility. However, unlike AAL, these airlines have robust balance sheets and low leverages.

Will American Airlines Increase Its Dividend Payouts?

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AAL, on the other hand, has been busy with other issues. First came its bankruptcy in 2011, which it emerged from only in 2013. Then came integration issues related to its US Airways merger.

Dividend yield

Despite these issues, AAL has an indicated dividend yield of 0.95%, similar to Southwest Airlines’ yield of 0.99%. Alaska Air Group has an indicated dividend yield of 1.3%, and Delta has the highest indicated dividend yield of 2.4%.

American’s cash dividend ratio also stands strong at 16.4x as of the end of 4Q16, indicating its ability to sustain dividend payouts. The ratio is calculated as income before extraordinary items minus minority and preferred dividends over dividends paid. It measures the ability of a company to pay its dividends. A ratio of less than 1 indicates dividend payouts higher than a company’s cash flows, which could be difficult to sustain going forward.

Outlook

AAL’s management has said that it will continue to return capital to shareholders, but it’s also recognized the need to be cautious about its leverage.

For this reason, though AAL may be in a position to increase its dividend payout, it may not do so. Analysts expect AAL’s dividend per share (or DPS) to remain at $0.10, the same level as it was in 2016, for the rest of 2017.

Investors, however, will likely want to keep an eye on AAL’s dividend policy for 2017 in the company’s upcoming earnings call. We’ll be covering AAL’s earnings, so be sure to track our American Airlines page.

Investors can gain exposure to American Airlines with low risk by investing in the PowerShares Buyback Achievers ETF (PKW), which holds 1.1% in the stock.

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