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Delta’s Aggressive Shareholder Return Plan

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Highest dividend yield

Delta Air Lines (DAL) has always tried to enhance shareholders’ wealth through dividend payments and share repurchases. Dividends and share buybacks depict a company’s sound financial position and give investors confidence in its stock.

Delta’s dividend rate has been among the fastest-growing dividend rates in the industry. From 2013 to 2018, the company’s dividend grew at a compound annual growth rate of over 42.3%. In 2018, the airline’s annualized dividend rate was $1.31 per share, 29% higher than in 2017.

Delta has one of the highest dividend yields among its peers at 2.8%. Its close competitors American Airlines (AAL), Alaska Air Group (ALK), and Southwest Airlines (LUV) have dividend yields of 1.1%, 2.1%, and 1.1%, respectively.

The airline’s dividend payout ratio of 23.1% is the second-highest ratio among its peers. Alaska Air Group has the highest payout ratio of 36.1%, while Southwest Airlines and American Airlines hold the third and fourth spots with ratios of 14% and 13.1%, respectively.

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Share repurchases

Delta has also been enhancing shareholders’ wealth through aggressive share repurchases. Share buybacks are believed to be a more tax-efficient way of enhancing shareholder returns than dividend payments. As share buybacks lead to a decline in the number of outstanding shares, they boost a company’s EPS.

Since initiating its first share buyback program in 2013, Delta has repurchased ~$9.5 billion worth of its common stock so far. The airline bought back $250 million worth of common stock in 2013, $1.1 billion in 2014, $2.2 billion in 2015, $2.6 billion in 2016, $1.7 billion in 2017, and $1.6 billion in 2018.

Except for some months in 2018, US air carriers (IYT) have enjoyed the benefit of the strengthened US dollar and lower fuel prices, which have improved their profitability and free cash flows over the last few years. Most airlines have used this opportunity to strengthen their balance sheets and enhance shareholder wealth through dividend payments and share buybacks.

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