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Will Alaska Air Increase Its Dividend Payouts in 1Q17?

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Apr. 19 2017, Updated 9:06 a.m. ET

Consistent dividends

At the end of 2015, Alaska Air Group (ALK) increased its dividend for the third time since it started paying dividends. It increased its dividend by 38%. 

The company’s ability to generate consistently high cash flows has helped it to maintain its dividend.

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Dividend yield

There are very few airlines that pay dividends, Alaska Air being one of them. Among these airlines, Alaska Air boasts the second-highest indicated dividend yield of 1.3%. 

Delta Air Lines (DAL) has an indicated dividend yield of 2.4%, the highest among the four airlines that pay dividends. Southwest Airlines (LUV) has a dividend yield of 0.99%. American Airlines (AAL) has a similar indicated dividend yield of 0.95%.

Cash dividend ratio

ALK’s cash dividend ratio stood at 7.7x at the end of 4Q16, indicating its ability to sustain dividend payouts. The ratio was lower than AAL’s 16.4x, LUV’s 13x, and DAL’s 15x.

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

Outlook

Alaska Air Group has a goal of paying dividends on par with other high-quality industrial companies. Therefore, investors can likely expect ALK’s dividends to keep moving north, even if the pace is slow.

Alaska Air forms 1.8% of the holdings of the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR).

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