Will Alaska Air Increase Dividend Payouts in 2Q16?


Jul. 15 2016, Updated 11:05 a.m. ET

Consistent dividends

At the end of 2015, Alaska Air increased its dividend by 38%, the third increase since it started paying dividends. Its ability to generate consistently high cash flows has helped it maintain dividends.

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Dividend yield

There are very few airlines that pay dividends. Alaska Air is one of them. It also boasts the highest dividend yield of 1.1%. Southwest Airlines (LUV) has one of the lowest dividend yields among the peers that pay dividends. LUV’s current dividend yield stands at 0.67%. Delta Air Lines (DAL) and American Airlines (AAL) have dividend yields of 1.0% and 0.98%, respectively.

Cash dividend ratio

Alaska Air’s cash dividend ratio stood at 9x at the end of 1Q16. That shows ALK’s ability to sustain dividend payouts. The ratio is slightly lower than AAL’s at 11.6x and LUV’s at 10.6x. DAL has a similar ratio of 9x.

The ratio is calculated as income before extraordinary items less minority and preferred dividends by dividends paid. It measures the ability of the company to pay dividends. A ratio less than 1 indicates dividend payouts higher than the company’s cash flows, which may be difficult to sustain in the future.

Outlook for Alaska Air

Alaska Air (ALK) has a goal of paying dividends on par with other high-quality industrial companies. Investors can thus expect dividends to keep moving up, albeit at a slow pace.

Alaska Air forms 0.53% of the SPDR Russell 1000 Momentum ETF (ONEO).


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