Last update on 2024-06-27

Delta Air Lines (DAL) - Dividend Analysis (Final Score: 4/8)

Delta Air Lines (DAL) Dividend Analysis using an 8-criteria scoring system. Evaluating dividend performance and stability with a final score of 4/8.

Short Analysis - Dividend Score: 4

We're running Delta Air Lines (DAL) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis evaluates Delta Air Lines' (DAL) dividend policy using 8 criteria and rates it on a scale of 0-8, where DAL scores 4. A summary of the criteria includes: 1. Dividend Yield: DAL's yield (0.4971%) is below the industry average (0.74%), showing lower returns from dividends compared to peers. 2. Dividend Growth Rate: DAL does not consistently achieve an annual growth rate higher than 5%; it experienced cuts, especially during the pandemic. 3. Payout Ratio: The average payout ratio of 5.91% over 20 years is well below the 65% threshold, suggesting a conservative dividend approach. 4. Dividends Covered by Earnings: Fluctuations in EPS and DPS show some years of risk but more stability after 2020. 5. Dividends Covered by Cash Flow: Inconsistent coverage with several years of inadequate free cash flow shows variability. 6. Stable Dividends: Inconsistent dividend payments, more stable after 2012 but impacted significantly by the pandemic. 7. Dividends Paid for 25 Years: Interrupted history of dividends, especially with a gap from 1998-2012 and 2021-2022. 8. Stock Repurchases: Mixed track record with notable buyback activity from 2014 to 2020 but also periods of share dilution.

Insights for Value Investors Seeking Stable Income

Due to the mixed results across the criteria, DAL presents both potential and risks for dividend-focused investors. It may not be ideal for those seeking consistent, long-term dividend stability and high yields compared to industry peers. DAL shows signs of financial discipline with low payout ratios and recent EPS improvements, but historical volatility due to significant external factors like the pandemic raises concerns. Investors looking for more stable and predictable dividend stocks might want to look elsewhere, whereas those with a higher risk tolerance might find potential if they believe in DAL's long-term recovery and growth strategy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important metric for income-focused investors who seek regular income from their equity investments. A higher dividend yield can be attractive, indicating that the stock is generating a good income relative to its price; however, it could also indicate potential issues such as financial instability or a declining stock price.

Delta Air Lines' (DAL) current dividend yield of 0.4971% is lower than the industry average, which stands at 0.74%. While this might seem like a drawback, it's important to contextualize this by looking at the historical trends. Over the past decade, DAL's dividend yield has been quite volatile, peaking at 2.6253% in 2018 before drastically reducing to 0% in 2020 during the pandemic. The recent yield still remains below historical highs. When compared with the industry, DAL has lagged in offering competitive yields—signalling either a focus on reinvesting earnings or financial struggles. Investors should consider whether the low yield aligns with their expectations for income and financial stability.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage growth rate of dividends. A rate higher than 5% is generally considered strong and suggests increasing profitability and business stability.

Delta Air Lines has a fluctuating dividend history. Since dividends were not paid from 2003 to 2012, the significant increase to 150 in 2014 represents a reintroduction rather than consistent growth. The average dividend ratio of 8.15% appears promising but is not consistent annually. Crucially, negative values in 2020 and 2021 suggest dividend cuts, likely due to pandemic impact. Overall, while there appears to be spurts of high growth in dividends, the inconsistency and cuts signal that the 5% growth criterion is not consistently met. Therefore, this trend is bad.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio is a critical metric in dividend analysis, showing what proportion of earnings a company is paying to its shareholders in the form of dividends. It is important to consider because a lower payout ratio typically indicates that the company is retaining earnings for growth, while a higher ratio may signify potential risk of dividend cuts if earnings fall. For most companies, a payout ratio under 65% is considered sustainable.

Based on the given data, Delta Air Lines (DAL) has maintained an average payout ratio of approximately 5.91% over the past 20 years. This is significantly lower than the threshold of 65%, indicating a conservative approach to dividend payments. The payout ratios were 0% for many years up until 2013, with a notable spike to 38.47% in 2014 followed by much lower and stable payouts. Additionally, there was a negative ratio in 2020, likely due to the impact of the COVID-19 pandemic. Post-2020 also saw very low payout ratios. Overall, this trend showcases Delta Air Lines' strategy of retaining earnings to fund growth and cushion against financial downturns, which is generally a positive sign for shareholders concerned about dividend sustainability.

Dividends Well Covered by Earnings?

Earnings per share (EPS) is a crucial indicator of a company's profitability. EPS represents the portion of a company's profit allocated to each outstanding share of common stock, serving as a key measure of a company's financial health. By comparing EPS to dividends per share (DPS), investors can determine if the company generates enough income to cover its dividend obligations. This is critical as dividends are a portion of earnings paid out to shareholders. For Delta Air Lines, EPS over dividends signifies the company's ability to sustain its dividend payments without compromising growth or operations.

Examining Delta Air Lines' EPS and DPS data from 2003 to 2023 shows periods of substantial fluctuation. Negative EPS values in several years (e.g., 2003, 2004, 2005, and notably 2020) highlight financial struggles, often corresponding with economic recessions or industry disruptions. Positive EPS values in years like 2007 (5.168), 2015 (5.6294), 2019 (7.3226), and 2023 (7.2128) indicate stronger performance. The relatively low or zero DPS during challenging years (2003-2012), followed by increasing dividends post-2013, suggests a cautious approach to dividends. Despite post-2020 recovery (EPS 2.0658 in 2022), EPS frequently falling below DPS in tougher times signifies risk. Overall, while current trends (dividend coverage ratio peaking at 0.3847 in 2014) are improving, persistent low coverage ratios are a red flag. Thus, this mixed performance highlights potential vulnerabilities making the trend moderately concerning for investors.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company generates sufficient free cash flow (FCF) to cover its dividend payments. This is crucial as it shows financial stability and the company’s ability to sustain its dividend payments over the long term without resorting to borrowing or depleting its reserves.

Delta Air Lines (DAL) has shown variable results regarding its dividends being well covered by cash flow. Negative or zero values are seen in 2003, 2004, 2005, 2007, 2008, 2009, 2010, 2011, 2012, 2019, 2020, and 2021, indicating insufficient free cash flow to cover dividends during those years. However, positive coverage ratios are apparent from 2013 to 2018, as well as in 2022 and 2023, showing periods where FCF has been adequate to cover dividend payments. The highest coverage occurs in 2016 with a ratio of 0.5815, suggesting very healthy cash flow. However, inconsistency over the years implies that Delta's ability to cover dividends from FCF is not dependable long-term, primarily impacted by external factors such as economic conditions and fluctuating operational results. This trend is suboptimal, bringing into question the reliability of Delta's dividend policy moving forward.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability over past 20 years and why important for Delta Air Lines.

Analyzing Delta's dividends over 20 years shows intermittent dividends till 2012 when consistent payments started, rising from $0.12 in 2013 to a peak of $1.506 in 2019. However, dividends dropped significantly in 2020 to $0.403, and no payments were made in 2021 and 2022, resuming in 2023 at $0.2—highlighting inconsistency and volatility.

Dividends Paid for Over 25 Years?

Dividends paid over a long continuous period indicate financial stability, solidity, and confidence in the company's future performance. Companies that manage to pay dividends consistently for over 25 years are often considered reliable and lower-risk by investors.

According to the data, Delta Air Lines (DAL) has not consistently paid dividends over the past 25 years. From 1998 to 2012, DAL paid no dividends, and though they began paying dividends in 2013, there were interruptions in 2020 and 2021 due to the COVID-19 pandemic. After resuming dividends briefly in 2022, the dividend was increased in 2023. This inconsistency presents a pattern that might be concerning for risk-averse investors looking for stable dividend payouts. The interruptions break the 25-year continuity, reflecting turbulent times for DAL, likely impacted by external factors like the pandemic.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate that a company is consistently using its excess cash to buy back its own shares, which can boost per-share metrics.

Delta Air Lines shows a mixed track record of stock repurchases. Between 2014 and 2020, they actively reduced their number of shares from 845 million to 636 million, reflecting substantial share buyback activity. Yet, looking at the long-term trend, there have been periods of significant share-dilution, such as in 2007 (311.922 million), 2008 (468 million), and 2009 (827 million). The mixed nature of this buyback activity may be influenced by external factors such as the 2008 financial crisis and other operational challenges. On average, the repurchase rate stands at 10.396% annually over the last 20 years, indicating an inconsistent yet material buyback strategy. This trend can be seen as moderate, reflecting neither consistently reliable nor entirely unreliable repurchase behavior.