In the previous article, we discussed how Alaska Air Group (ALK) is using its cash flows to deleverage its balance sheet. ALK has also used its cash flows to increase the dividend payout to its shareholders.
Alaska Air Group’s cash flow from operations increased by 54% to ~$1.6 billion. At the end of 2015, ALK had $1.3 billion in cash.
After its 4Q15 earnings release, Alaska Air Group announced its third dividend increase in 2.5 years. ALK increased its dividends by 38%, reinforcing the management’s confidence in sustaining cash flows.
Highest dividend yield
Alaska Airlines (ALK) is one of the few air carriers that pays dividends. The other airlines are American Airlines (AAL), Southwest Airlines (LUV), and Delta Air Lines (DAL). ALK started paying dividends in 2013.
With a 1.6% dividend yield, ALK has the highest dividend yield of these airlines, although it is less than the S&P 500’s (SPY) average dividend yield of 2.3%. AAL has a dividend yield of 1.03%, DAL has a dividend yield of 0.96%, and LUV has a dividend yield of 0.73%.
Alaska Air Group’s cash dividend coverage stands at a healthy 11x. Calculated as cash flows over dividends paid, the coverage ratio measures the ability of the company to pay dividends. The higher the ratio, the greater the sustainability of dividends. A coverage ratio of less than one indicates insufficient cash flow for dividend payments. Alaska Air Group (ALK) has a goal of paying dividends on par with other high-quality industrial companies.