New dividend payer
Delta Air Lines (DAL) is one of the few airlines that pay dividends, as most airlines find it difficult to even stay profitable during cyclical downturns. Fuel prices constitute a major portion of airlines’ costs, and only the recent fall in crude oil prices allowed airlines to become profitable again.
American Airlines (AAL) has a similar indicated dividend yield of ~1.1%. Southwest Airlines (LUV) has one of the lowest dividend yields among its industry peers. LUV’s current indicated dividend yield stands at ~1.0%.
Cash dividend coverage ratio
Delta Air Lines’s cash dividend ratio stood at a strong 15x at the end of 2Q16, indicating its ability to sustain dividend payouts. The ratio is calculated as income before extraordinary items minus minority and preferred dividends.
The cash dividend ratio measures a company’s ability to pay dividends. A ratio of less than 1 indicates dividend payouts higher than the company’s cash flows, which may be difficult to sustain in the future.
Can dividend payouts increase?
Delta Air Lines (DAL) has a history of increasing dividend payouts every four quarters. It first paid a dividend of $0.06 in 3Q13, increased it 50% to $0.09 in 3Q14, and increased it 55% to $0.14 in 3Q15.
We can expect DAL’s dividends to increase in 3Q16. The Bloomberg analyst consensus estimates that Delta Air Lines’s dividend could increase 43% to $0.20 in 3Q16. The dividend payout ratio is also expected to increase to 12.3%, compared to 8.1% in 3Q15.
DAL forms ~2.6% of the PowerShares Dynamic Market Portfolio ETF (PWC).