What are we looking for?
Sustainable dividends from airlines now seeing strong demand despite a spike in fuel costs and a likely hike in airfares.
The screen
Both Delta Air Lines Inc. DAL-N and American Airlines Group Inc. AAL-Q have raised their revenue forecasts for the first quarter. That reflects strong travel demand this year to date.
Meanwhile, some top airlines are raising their prices to offset higher jet fuel costs because of the war in the Mideast. Still, others say demand for flights is strong enough to negate any need to pass along increased fuel costs to their passengers.
Notably, Delta says it expects to absorb a roughly $400-million jump in fuel costs for the first quarter, alone. What’s more, its bookings are up 25 per cent year-over-year despite the geopolitical turmoil and its economic fallout.
The top dividend-paying airlines are especially well placed to share their expected gains with investors.
Our search started with airlines offering solid revenue growth but also dividends. We then applied our TSI Dividend Sustainability Rating System, which awards points to a stock based on key factors:
- one point for five years of continuous dividend payments;
- two points for more than five;
- two points if it has raised the payment in the past five years;
- one point for management’s commitment to dividends;
- one point for operating in non-cyclical industries;
- one point for limited exposure to foreign currency rates and freedom from political interference;
- two points for a strong balance sheet, including manageable debt and adequate cash;
- two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- one point for being an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks:
Delta Air Lines Inc., headquartered in Atlanta, flies to major U.S. and global markets. Dallas-based Southwestern Airlines Co. LUV-N, another industry giant, has built its leading position on low fares and a focus on short hauls. Note that it’s now adding more long-haul options and premium services.
Singapore Airlines Ltd. SINGF is that city-state’s national carrier, and it also operates discount airline Scoot. Panama-based Copa Holdings SA CPA-N, a Latin American provider of passenger and cargo services, offers service to countries in North, Central and South America, and the Caribbean.
Finally, Germany’s flag-carrier Deutsche Lufthansa AG DLAKY flies globally under its own brand, but also owns Swiss International Airlines, Austrian Airlines, Discover Airlines, Brussels Airlines and Eurowings.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.