Delta Air Lines returned a total of $1.35 billion to shareholders, which included $251 million of dividends and $1.1 billion in share repurchases. This is an increase of $1 billion compared to $350 million returned to shareholders in 2013. The company expects to return a minimum of $1.5 billion in 2015.
Delta’s capital returns as a percentage of free cash flow increased to more than 40% from 17% in 2013. During 2014, the dividend was increased by 50% to $0.09 per share, and Delta completed $850 million of the $2 billion share repurchase program. In 4Q14, Delta repurchased shares worth $500 million, and it expects to complete the entire $2 billion share repurchase authorization by 2015, one year ahead of schedule.
Delta’s share price increased by 78% to $49 on December 31, 2014, from $27.70 in the beginning of the year. Improved earnings and profitability drove the rise in its share price, which resulted in higher free cash flows. As seen in the chart above, Delta improved its balance sheet considerably by reducing debt.
Despite the recent increase in share price, Delta Air Lines’s (DAL) EV/EBITDA (or enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is 6.57x. This multiple is lower than American Airlines’s (AAL) 7.35x and Southwest Airlines’s (LUV) 7.62x, and it is almost in line with United Continental Holdings’s (UAL) 6.54x. Alaska Air Group (ALK) has the lowest EV/EBITDA multiple with 4.66x.
Outperforming analyst estimates
Delta management’s focus on increasing returns to capital providers and shareholders is evident from its consistent performance in the past two years. Delta has exceeded analyst estimates in every quarter for more than two years. Out of the 20 Wall Street analysts who cover Delta, 18 recommended a buy for the stock with almost a ~29% upside potential from the current market price.
Investors who wish to participate in growth of the airline companies can do so through ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN) that hold some of these airline stocks.