Southwest Airlines’ Fourth-Quarter Dividend



Fourth-quarter dividend

Yesterday, Southwest Airlines’ (LUV) board of directors declared a cash dividend of $0.16 per share for the fourth quarter of 2018, which is 28% higher than the corresponding quarter of last year. The recently announced quarterly dividend will be payable on January 2, 2019, to shareholders of record as of December 5, 2018.

The last three years have been prosperous ones for airlines around the world especially US-based airlines (JETS) due to the strengthening dollar against all other major currencies. Most airline operators have used this opportunity to strengthen their balance sheets and enhance shareholders’ returns through share repurchases and dividend payments.

Southwest Airlines has a long history of returning cash to shareholders through dividend payments. The latest announcement marked the 169th consecutive quarter of dividend payments. Southwest Airlines is one of the few air carriers that pays dividends.

Delta Air Lines (DAL) and Alaska Air Group (ALK) are some other airlines who have a decent dividend payment history. The largest airline by 2017 fleet size, American Airlines (AAL) started paying dividends in mid-2014.

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Dividend yield

Despite having a long track record of regular dividend payments, Southwest Airlines has one of the lowest dividend yields at 1.2%, higher than only American Airlines’ 1.1% dividend yield. Delta Air Lines and Alaska Air Group have dividend yields of 2.5% and 1.9%, respectively.

Southwest Airlines’ dividend payout ratio stood at 14.4%, which is way higher than American Airlines’ 8.6%. However, Delta Air Lines and Alaska Air Group have higher payout ratios of 24.4% and 30.6%, respectively.

Share repurchases

Although Southwest Airlines’ dividend yield and payout ratio may be lower than some of its peers, the company has another way of enhancing shareholder wealth. The company has repurchased billions of dollars worth of its common stock in the last few years. The airline operator repurchased $1.5 billion worth of shares in the first nine months of 2018. In 2016 and 2017, it repurchased $1.8 billion and $1.6 billion worth of common stock.

Share buybacks mean more cash in investors’ hands. Share buybacks are also a more tax-efficient way of returning money to shareholders compared to paying dividends. Since share repurchases lead to a decline in the number of outstanding shares, they boost the company’s earnings per share.


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