New dividend payer
Delta Air Lines began paying dividends in 2013. Only three other airlines pay dividends. In the past, this trend was due to the cyclical nature of the industry, which made it difficult for airlines to stay profitable. However, since crude prices have fallen more than 60% from the peak, one of the airlines’ major costs has fallen drastically.
DAL has an indicated dividend yield of 2.0%, the highest among the four airlines that pay dividends. Alaska Air Group (ALK) has the next highest indicated dividend yield of 1.3%. American Airlines (AAL) has an indicated dividend yield of 0.81%, and Southwest Airlines (LUV) has a dividend yield of 0.67%.
Cash dividend coverage ratio
DAL’s cash dividend ratio stood at a strong 4x at the end of 1Q17, indicating its ability to sustain dividend payouts. The ratio is calculated as income before extraordinary items less minority and preferred dividend divided by total dividends paid. The ratio measures the ability of a 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 rise?
Delta’s strong financials support its dividend payouts and show its ability to increase dividend payments in the future. Investors can expect an increase in dividend payment in 3Q17. For the second quarter, dividend per share is expected to remain at $0.2.
Investors can gain exposure to Delta Air Lines stock by investing in the First Trust Industrials/Producer Durables AlphaDEX Fund (FTXR), which invests 2.1% of its portfolio in the airline.