Southwest Airlines Entices Investors With Dividend Hike and More Share Buybacks

May 15, 2019 by Jon C. Ogg

Southwest Airlines Co. (NYSE: LUV) wants to bring back more shareholders. The company held a board meeting and wants to put investor concerns at ease over the ongoing Boeing 737 MAX fleet grounding and concerns about a slowing economy heading into the summer. Its board has decided to increase the dividend and increase its stock buyback activity.

Southwest’s quarterly dividend was hiked by 12.5%, with a new dividend of $0.18 replacing the prior one of $0.16 per share. This dividend increase will be paid to shareholders of record at the close of business on June 5, 2019, and the actual payment date for the dividend is June 26, 2019.

Southwest was the first of the major airlines to begin offering up a regular dividend, and it was damaged the least under super-high oil prices and the recession due to fuel hedging and schedule optimization efforts. The new dividend will generate a yield of almost 1.4% for investors buying at the current $52.10 share price.

The board further authorized a new $2.0 billion common share repurchase program. Southwest also updated how much repurchasing activity is has conducted to-date. The company said that it has bought back approximately 21.7 million shares under the May 2018 $2.0 billion share repurchase authorization, as of March 31, 2019. During the second quarter of 2019, the company already has spent a total of about $450 million in share repurchases, including a $400 million accelerated share repurchase (ASR) program that was launched on April 29, 2019.

As far as the new $2 billion share buyback in the grand scheme of things, Southwest Airlines has a $28.3 billion market capitalization.

The specific number of shares the company ultimately will repurchase under the Second Quarter 2019 ASR Program will be determined based generally on a discount to the volume-weighted average price per share of the common stock during a calculation period to be completed no later than July 2019. Subsequent to the launch of this ASR program, the company had $400 million remaining under the May 2018 $2.0 billion share repurchase authorization. Southwest also entered into an additional open market share repurchase plan for the purchase of up to an additional $50 million of its shares of common stock, depending on market prices.

Gary C. Kelly, board chair and chief executive officer, issued a statement with the release:

We have consistently produced strong margins, returns on capital, and cash flows. I’m pleased to announce the Board’s decision today to increase our quarterly dividend by 12.5 percent to $.18 per share, or $.72 per share annualized, which amounts to approximately $391 million, and an approximate 1.4 percent dividend yield. I am also pleased that the Board authorized a new $2.0 billion share repurchase program upon the completion of the remaining $400 million under the May 2018 $2.0 billion share repurchase authorization.

This share repurchase authorization, combined with our annual dividends, continues our consistent track record of Shareholder returns. Since 2010, we have returned more than $11 billion of value to Shareholders through share repurchases and dividends. Our long-term financial goals remain unchanged: maintain a strong balance sheet, investment-grade credit ratings, and ample liquidity; generate robust operating and free cash flows; grow earnings, margins, and capital returns; and maintain healthy Shareholder returns.

While no company may be entirely immune to a slowing economy or recession, Southwest was among 10 stocks to own with no China exposure worth noting. The company is in the exact opposite boat as the 12 major U.S. companies that would lose the most to a China trade war.

Southwest shares were last seen trading up almost 1% at $52.10 on Wednesday, in a 52-week range of $44.28 to $64.02.