Southwest Airlines (LUV) Stock Lower Despite Dividend Hike

NEW YORK (TheStreet) -- Southwest Airlines (LUV) announced today that it has increased its quarterly dividend by 25% and authorized a new $1.5 billion share repurchase program.

Shares of Southwest Airlines are lower by 1.12% to $41.78 in early afternoon trading on Wednesday.

The company's quarterly dividend will increase to 75 cents per share from 6 cents per share, starting with the 155th consecutive quarterly dividend declared today to shareholders of record at the close of business on June 3.

The dividend will be paid on June 24.

As part of the new $1.5 billion share repurchase program, Southwest intends to repurchase an initial $300 million of its common stock under an accelerated repurchase program.

"Dedicated to returning value to our shareholders, we returned substantially all of our free cash flow to shareholders in 2014 through $1.1 billion in share repurchases and dividend payments. In recognition of our strong financial position, performance, and cash flow outlook, the board's actions today further reinforce our commitment to create value for our shareholders," company CEO Gary Kelly said in a statement.

Separately, TheStreet Ratings team rates SOUTHWEST AIRLINES as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LUV's revenue growth has slightly outpaced the industry average of 0.9%. Since the same quarter one year prior, revenues slightly increased by 6.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SOUTHWEST AIRLINES reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SOUTHWEST AIRLINES increased its bottom line by earning $1.65 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($3.53 versus $1.65).
  • Powered by its strong earnings growth of 200.00% and other important driving factors, this stock has surged by 73.96% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • Net operating cash flow has increased to $1,452.00 million or 29.75% when compared to the same quarter last year. Despite an increase in cash flow of 29.75%, SOUTHWEST AIRLINES is still growing at a significantly lower rate than the industry average of 99.28%.
  • The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that LUV's debt-to-equity ratio is low, the quick ratio, which is currently 0.57, displays a potential problem in covering short-term cash needs.
  • You can view the full analysis from the report here: LUV Ratings Report

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