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Southwest Shares Up on Dividend Hike & New Buyback Program


Southwest Airlines Co. LUV has rewarded shareholders with 28% dividend hike and a new share repurchase authorization worth $2 billion on the back of impressive results and a strong cash flow, arising from huge savings on account of the U.S. tax reform. The move indicates the company’s sound financial position and favorable prospects.

Following this announcement, shares of the company rose 2.5% to $53.01 at the close of business on May 16.

The quarterly dividend of 16 cents per share (or 64 cents annually) will be paid on Jun 27, 2018 to shareholders of record as of Jun 6. The amount has been hiked from the current 12.5 cents, marking the company’s 167th consecutive quarterly dividend.

Additionally, the board has announced a new share buyback program of $2 billion in aggregate, set to begin on completion of the existing $2-billion share repurchase authorized in May 2017. Under the existing program, the company has repurchased 19.8 million shares and has $350 million still remaining to be bought back.

The recently approved share buyback will be executed per the prevailing laws and is liable to be discontinued at any point of time.

Southwest Airlines Co. Price

Southwest Airlines Co. Price | Southwest Airlines Co. Quote

The company’s shareholder-friendly approach comes in at a time when it is embroiled in a lot of trouble. The successive mid-air flight snags in a month’s time has been hampering the company’s reputation. No wonder that demand for the carrier has declined. The airlines’ April traffic results bear testimony to this dismal situation. Traffic in the month slipped 0.3% on low demand following the fatal engine failure.

Moreover, during first-quarter 2018 results, the company provided a bleak outlook for unit revenues in the second quarter citing weak bookings after the fatal Apr 17 incident. It expects revenue per available seat mile (RASM: a key measure of unit revenue) to decline between 1% and 3% in the quarter.

On Apr 30, the company had announced another $500-million accelerated share repurchase program, possibly to counter this adversity.

Zacks Rank & Key Picks

Southwest carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Transportation sector are GATX Corporation GATX, Expeditors International of Washington, Inc. EXPD and SkyWest, Inc. SKYW. While GATX carries a Zacks Rank #2 (Buy), Expeditors and SkyWest sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX, Expeditors and SkyWest have rallied more than 29%, 36% and 69%, respectively, in a year.

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