Dividend for 1Q18
On February 9, 2018, Delta Air Lines (DAL) announced that it will pay its 1Q18 dividend on March 16, 2017. Investors who held DAL stock as of February 23, 2018, will be eligible to receive the dividend. At the end of 4Q17, DAL had 711 million outstanding shares. If DAL doesn’t buy back any shares until the record date, it will be paying $216.9 million in 1Q18 compared to $149 million in 1Q17. The increase is primarily due to an increase in the dividend rate.
Dividend rate and growth
Delta Air Lines announced a dividend of $0.31 per share for 1Q18, an increase of 50.6% compared to the previous year. DAL began paying dividends in 2Q13 and has been paying a quarterly dividend regularly. It has also been increasing its dividend rates every year. Assuming the present dividend rate will continue, DAL will be paying a dividend of $1.22 for fiscal 2018, an increase of 20.8% over fiscal 2017. Since 2014, DAL’s dividend has grown at a CAGR (compound annual growth rate) of a staggering 49.8%.
Free cash flows
Free cash flows are important since dividends are usually paid out of free cash flows. For fiscal 2017, DAL generated a free cash flow of $2 billion. On a per-share basis, that’s approximately $2.81. For fiscal 2017, 36% of its free cash flow was used to pay the dividend, leaving 64% of free cash flow to be used for other purposes. We can assume that with DAL’s strong free cash flow, the current dividend growth should be sustainable.
Investors can indirectly hold DAL by investing in the First Trust Nasdaq Transportation ETF (FTXR), which has invested 4.1% of its portfolio in Delta Air Lines as of February 26, 2018.