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Can Delta Increase Its Dividend Payouts in 2016?

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Recent dividend payer

Delta Air Lines started paying dividends only in 2013, and it’s one of the few airlines that pay dividends. In a cyclical industry, airlines find it difficult to even stay profitable, let alone pay dividends.

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Dividend yield

DAL has an indicated dividend yield of 1.42%. American Airlines (AAL) has a similar yield of 1.37%. Alaska Air Group (ALK) has the highest indicated dividend yield of 1.8%, while Southwest Airlines (LUV) has one of the lowest dividend yields among industry peers at 1.0%.

Cash dividend coverage ratio

DAL’s cash dividend ratio stood at a strong 9.05x at the end of 1Q16, indicating its ability to sustain dividend payouts. The ratio is calculated as income before extraordinary items less minority and preferred dividends, and it measures the ability of the company to pay dividends. A ratio of less than one indicates dividend payouts higher than the company’s cash flows, which may be difficult to sustain in the future.

Can dividend payouts increase?

Delta has a history of increasing dividend payouts every four quarters. It first paid a dividend of $0.06 in 3Q13, increased it by 50% to $0.09 in 3Q14, and again increased it by 55% to $0.14 in 3Q15.

Thus, we can expect DAL’s dividend to stay constant at $0.14 for the next quarter and increase in 3Q16. Bloomberg analysts’ consensus dividend growth estimate of $0.2 in 3Q16 supports this forecast. The iShares Dow Jones Transportation ETF (IYT) has 20% exposure to airlines.

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