Delta and Southwest: Which Buyback and Dividend Hike Is Better?

The board of directors from Southwest announced Wednesday that it approved a 25% hike in its dividend, while at the same time it is initiating a $1.5 billion share buyback.

Now 25% might seem a lot for the dividend hike, but the dividend is only increasing to a quarterly $0.075 from $0.06, totaling an annual payout of $0.30. The dividend payout ratio is 8.5%.

As for Delta, its board of directors approved a $5 billion stock-repurchase plan that more than doubled the previous year’s plan. At the same time, Delta raised its dividend by 50% as a windfall for savings on fuel. Both the repurchase and the buyout have a total combined value of $6 billion.

Delta is increasing its dividend to a quarterly $0.135, or annual $0.54. The dividend payout ratio is 11.7%.

Ed Bastian, Delta’s president, said on Bloomberg TV:

We’re not just handing it back to shareholders. This year we expect to generate almost $8 billion of operating cash flow. We continue to pay down debt and reduce the leverage on the balance sheet, and we’re also investing actively in our product and our services and our employees.

Midday Wednesday, shares of Delta were up 2.3% to $47.14. The stock has a consensus analyst price target of $62.43 and a 52-week trading range of $30.12 to $51.06.

Shares of Southwest were down 0.9% to $41.89, in a 52-week trading range of $24.41 to $47.17. The consensus price target is $55.27.

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