Delta Air Lines’ 2Q18 dividend
On April 27, Delta Air Lines (DAL) announced the critical dates for the payment of its 2Q18 dividend. Investors who hold DAL stock in the company’s record as of May 11 will be eligible to receive the dividend. DAL has fixed June 1 as the pay date.
DAL has maintained its dividend at $0.31 per share. DAL’s peers American Airlines (AAL) and SkyWest (SKYW) have announced or paid 2Q18 dividends of $0.10 and $0.10, respectively. However, Southwest Airlines (LUV) has yet to declare its 2Q18 dividend.
At the end of 1Q18, DAL had 706 million outstanding shares. If DAL doesn’t buy back any shares until the record date, it will be paying ~$215.3 million in 2Q18 compared to $148 million in 1Q17. The increase is primarily due to the rise in the dividend rate.
Delta’s dividend has been one of the fastest-growing dividends in the industry. Its 2Q18 dividend represents a rise of 50.6% over 2Q17. From 2014 until 2017, DAL’s dividend grew at a CAGR (compound annual growth rate) of ~49.9%. In 2018, if DAL maintains the same dividend rate, it could be paying a dividend of $1.22 per share.
However, it should be noted that historically, DAL has raised its dividend in its third quarter. If this trend continues, DAL is scheduled to increase its dividend in the next quarter, which is good news for investors. However, we should also check whether DAL can continue this kind of robust dividend growth.
Free cash flow
It’s also important to consider free cash flow, as usually dividends are funded by free cash flow generated. In 1Q18, DAL generated free cash flow of $173 million, and it distributed $217 million in dividends.
In 2017 and 2016, DAL generated free cash flows of $2.0 billion and $3.8 billion, respectively. For these two years, DAL used 36% and 13.4% of its free cash flows to pay dividends. At present, its strong free cash flow trend indicates that its dividend growth is sustainable.
Investors can indirectly hold DAL by investing in the First Trust NASDAQ Transportation ETF (FTXR), which has invested 4.0% of its portfolio in Delta Air Lines as of May 9.