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Delta Air Lines (DAL) to Hike Dividend, Close Buyback Plan

Per a recent Wall Street Journal report, Delta Air Lines Inc. DAL will pay an increased dividend to shareholders and conclude its ongoing share repurchase program by May 2017. The airline will pay an annual dividend of 81 cents, up 50% from the previous payout of 54 cents. This will mark the third consecutive quarter of a 50% dividend hike by the Atlanta-based airline since 2013.

Delta also plans to close the ongoing $5 billion share buyback program, which was launched last year, to increase shareholder value. It will make accelerated share repurchase of $375 million during the second quarter.

Fuel Savings Mean Shareholders’ Gain

Given that fuel costs are one of the most significant expenses for airlines, soft crude prices have resulted in massive savings for carriers, thereby boosting their financial health. Naturally, this caused a massive rebound in the fortune of airline stocks, helping carriers like American Airlines Group Inc. AAL and Delta Air Lines, which had filed for bankruptcy protection not so long ago, rake in huge profits. Another low-cost carrier, Southwest Airlines LUV recorded its highest profit sharing payment ($620 million) this year.

The ongoing financial prosperity in the airline space has prompted carriers to pay out incremental dividends and undertake shareholder-friendly initiatives like share buybacks and profit sharing.

The Bottom Line

Delta Air Lines posted impressive air traffic data for the month of April, wherein the company reported revenue passenger miles (RPMs) of 17.34 billion, up 2.7% from 16.89 billion recorded a year ago. Consolidated capacity (or available seat miles/ASMs) also inched up 2.5% to 20.81 billion. The company has been reaping considerable benefits from route expansion plans, introduction of ancillary products, fleet revamping and customer service enhancements as well as from its joint ventures and code share agreements. Thanks to such steps, the airline overtook United Continental Holdings, Inc. UAL as the nation’s second-largest airline based on traffic last year. We believe that the encouraging 2016 profitability forecast issued by the International Air Transport Association (IATA), along with Delta’s encouraging operational results, will enable it to reap incremental benefits, going ahead.

Delta Air Lines presently carries a Zacks Rank #3 (Hold).

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