Lanny’s Recent Stock Purchase – Delta Airlines (DAL)

Who doesn’t love an enjoyable experience when flying?  I know I do.  However, enjoying a flight is a rarity these days, especially when top airliners are making their own “headliners” from ripping people off planes, arresting them or the customer service is of the worst quality.  Personally, when I think of the most enjoyable experience that I’ve had from terminal, to boarding, to getting off the plane, I can only think of one airline.  That airline is Delta and I happened to purchase their stock last week.

The Stock – Delta Airlines (DAL)

Delta (DAL) is the second largest airline company by revenue and is the largest by market capitalization.  In fact, I performed a robust dividend stock analysis on Delta two and a half months ago.  Let’s just say, I was intrigued then.  For those that don’t know Delta, here is one brief sentence from Google Finance, “Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo throughout the United States and across the world.”  I believe hat sums it up quite nicely.  To rewind back to that analysis I performed, they were trading at $50.80 per share with a dividend, at the time, of $0.81 per share, per year.  Well, guess what happened?  Delta announced a 50% increase to their dividend and a MASSIVE $5 billion repurchase program.  I was LOVING this news.  At the time of my purchase on August 15th, the share price was $50 per share, or almost a 2% drop since that article, with the large increase in their dividend yield as well.  I knew that the timing was “right” for me to hop in the seat on this airline.  As I typically do, let’s run through the dividend diplomat stock screener stats for this one.

1.) Price to Earnings (P/E) – At the time of purchase, for ease of rounding, the price was $50.00 per share.  Forward earnings are looking like $5.04 per share.  Therefore, this equates to a p/e ratio of a measly 9.92 and is far below their competitors and the S&P 500 as a whole.  I typically want to see below 18 and 10 is usually a low point for me, as there may be something interesting going on that an ordinary investor doesn’t know about.  This is right around the 10 mark, and given how popular and well-known Delta is, I feel a heck of a lot better.

2.) Dividend Yield – To rewind briefly, in the Delta stock analysis article from two months ago, their yield was only 1.59%.  The 50% dividend increase and a small drop in the share price of almost 2%, has allowed the dividend yield to spring up to a more tasteful 2.43% (new Dividend amount is $1.22 per share).  With that dividend growth mindset to expand their yield and their current earnings, I’m excited for this company to play well in my portfolio.

3.) Dividend Growth Rate – Listen everyone, Delta (DAL) has had FOUR years of CONSECUTIVE 50% increases to their dividend!  In fact, this was the year where it was 50.6%, instead of 50% spot on.  I love this history and the track record they are laying down.  Find out why the dividend growth rate is extremely powerful.  This far surpasses my current growth rate by almost 10 fold, yikes!

4.) Payout Ratio: Since forward earnings is $5.04 and their current dividend is $1.22, the payout ratio is very nice here.  At a calculated 24%, the payout ratio is low and the growth rate mentioned above can still continue for quite some time.  Think about this, if earnings stayed stagnant at $5.04 and the dividend went up another 50%, from $1.22 to $1.83, the payout ratio is STILL ONLY 36%.  I love it.

To show proof of my “ticket” on this airline:

I purchased $1,500 worth at $49.9965 per share for a total of 29.9231 shares, with a $3.95 trading fee.  This added $36.51 to my forward dividend income.  Based on the last few years of flying, I always have had the best experiences with Delta Airlines.  Honestly, I feel great to be a shareholder and now will always try to make an effort to fly with them for work and personal travels. 

Delta Airlines (DAL) Stock Purchase Summary & Conclusion

This is another NEW addition to my portfolio, and is actually a new industry (Consumer-Airline) that I currently do not have.  This marks the 10th purchase this year is pushing me towards the dividend goal within my goals set for 2017.  I am very excited for Delta, as well as their share repurchase program.  The repurchase program should open up quite a bit of value from a dividend investor stand point, as it may allow room for earnings growth and dividend increases.  On top of that, their customer satisfaction is by far the best I’ve seen in the industry, with Southwest a solid second.  My order of operations is always Delta, Southwest and then United.  I wish there were more flights from Delta out of Cleveland, that’s for sure.

Now onto the readers, what do you think of this dividend stock purchase?  Do you like it?  Are you staying away from flying and therefore, are staying away from buying an airline stock?  Think this industry is too hard to determine where they are going?  Would you buy them, right now, with the dividend metrics displayed above?  Would love to hear your feedback, as always.  I appreciate the feedback and insight you have on this investment decision!  Thank you again, everyone, good luck and happy investing!

-Lanny

Facebooktwittergoogle_plusredditpinterestlinkedinmail

28 thoughts on “Lanny’s Recent Stock Purchase – Delta Airlines (DAL)

  1. Lanny – congrats on your new purchase. And I can see that you managed to jump on-board before their ex-dividend date which is today 🙂
    It’s looking good from your analysis but I would personally stay away from airline stocks for now. I think their results are good at the moment due to low oil price but it might change in the future.
    Perhaps I would add it if I had a strong foundation portfolio already, though. Since I am only starting with building my dividend portfolio, I am going to stick with more traditional dividend companies for now 🙂

    • BI –

      Thanks for your comment! I had to hop on that, for sure. I know airline doesn’t bode the best flavor, I would tend to agree on the oil price impact that has been seen in their financials.

      if you are starting out – build those foundation stocks that have been there for a very long time and have products/services that are in use everyday.

      -Lanny

  2. Interesting pick up. You don’t really think of airlines as traditional dividend growth stocks but the metrics seem to all be there for DAL. I never considered any airline for my own portfolio but maybe it’s time to change that mentality. I know, W. Buffett has been getting into the airline sector in earnest not long ago which says something. Thanks for sharing.

    • DH –

      Of course and DAL/airlines don’t typically stand out as dividend investments, but the metrics stacked up too well. I believe you are right with Warren, I think he was in American Airlines and a few others maybe? I can’t recall, but I do know he has large investments with them. Not a huge position, but this company showed signs of value and as a consumer – I like them, haha.

      -Lanny

  3. Typically I hear such bad connotation around airline investing – with Warren Buffet getting into it recently, along with the numbers you posted, it has definitely earned another look in the future.

    Thanks for sharing – I love flying Delta as well (especially for their cookies with coffee)

  4. DAL and LUV have historically been the top two. Haven’t invested in the industry since I sold TWA years ago unless you count my indirect holding in Cathay Pacific. The issues faced are fuel prices (which were well hedged when they were a client of mine), it’s capital intensive and the industry tends to lack self control with capacity. Throw in infrastructure improvements (generally paid for by the airlines/customers) and the weaker US dollar (international costs – which also can be hedged to a degree) presents a picture that may not be readily visible on an initial screen basis without digging through the weeds.

    • Charlie –

      Appreciate your insight and the capital intensive industry they are in. Your experience with them helps a great deal going forward. I’ll continue to evaluate the position and the company in the upcoming financial reporting periods.

      -Lanny

  5. Well, I can honestly say that I didn’t give Delta a first thought, let alone a second. I do admit that when I travel, I prefer Delta, especially over American Airlines who I believe have horrible customer service. But, in general, the airline industry just scares me. It’s hard to put my finger on it, but it does. However, the one thing I like is that the airline industry is easy to understand and ‘they’ say you should only invest in things you understand. It seems like you do.

    Grats on building on your portfolio Lanny. Adding shares and building on your position is the name of the game.

    • DP –

      Hey, if airlines scare you then don’t invest! No worries at all. Love Delta and will be anxious to see the performance here going forward.

      If things go well, as they’ve been for delta for quite some time, I’ll consider adding more. Solid metrics all around.

      -Lanny

  6. Lanny, interesting DGI pickup. Ive always had the opinion you have to venture outside of the “perfect” stock to develop a longterm portfolio. I just made picked up some SNA at $141.10. Like delta, it’s not one seen held often by DGI’ers. If you have a sec check it out. IDE be interested to hear your thoughts.

    • CDCarver –

      Oh nice, nice. Not an often owned stock. My curiosity is peaked and I’ll have to go review their financials and see what’s “under the hood”. Let’s keep moving forward and learning, that’s what is fun about this.

      -Lanny

  7. I’m pretty surprised by this, I don’t think it’s a great industry to get into for long term. There’s little to no differentiation among competitors, earnings aren’t stable, fuel prices are erratic, terrorism, government sets the rules, everyone loves to bash airlines (see United Airlines..)… Just too many issues you can’t predict. The 1 time I flew Delta it was ok, but I like Southwest or Jet Blue-but as stocks, I wouldn’t put any $$ into any of them long term, and not for dividends. I think there’s other safer choices to get into.

    • Geoff –

      Appreciate your input. Here’s a question – if you fly, you have to choose one. So there’s revenue to be had in this industry. If you, as a consumer, don’t care – then Delta will be picked occasionally, as it looks like you flew with them before, why did you fly and hand them money? Is it because you planned on flying and they had the best duration to price point? Then great, someone will receive it. I prefer Delta when flying, their dividend metrics are sound and have been for some time, looking forward to owning them! I own Pfizer, people call me crazy for owning a company that’s in the pharm business, in the meantime – my YOC is triple than the current yield and I’m up over 150%+ since buying them, but there are safer choices.

      -Lanny

      • Hi Lanny, I chose Delta because they were the cheapest option for my particular time frame. My point is that there’s basically no difference between carriers, most people will fly with who ever offers the cheapest or most convenient route. Airlines have such high fixed costs they need to keep planes in the air as much as possible or they lose money. They have no control over outside events that will delay or cancel flights. Like mining companies, they are very cyclical. Dividends will go higher for a few years but then the next crisis hits and the first thing to go is the dividend. The airline industry history shows this. The 50% increases lately will be wiped out later- no company cuts a dividend only 5%. A pharma company is a totally different beast compared to an airline. At least pharma get patent protection and the options for switching are much narrower, if you even can switch drugs. Make the moves you’re comfortable with, but for me I can’t see these dividends being stable enough to place my retirement money on.

  8. 4 years of consecutive 50% dividend increases is pretty amazing.

    Personally I prefer LUV as an investment and for travel. The yield isn’t quite as juicy though.

    There’s a conspiracy theory floating around that the airline industry has experienced so much consolidation and the remaining players share so many overlapping institutional investors that the companies aren’t really compelled to compete with one another anymore.

    Enter Warren who certainly recognizes a good cartel when he sees one, and it makes you wonder if the specific name matters all that much (he bought shares in all 4 of the largest US carriers)

    They have somehow managed to keep ticket prices elevated even though their fuel costs have completely collapsed…

    Capitalism abhors a vacuum, but the barriers to entry are really steep in such a capital intensive business. I suspect this purchase will do well.

    • CFW –

      And THANK YOU! There are few players, as you stated, and if you fly, you have to choose one, right?! Further, they can charge you whatever the want and if you must fly, you will, sadly. What they can do, though, is customer service and if I had the ability to fly southwest, I would, but the issue I have is that they aren’t going to places that I am. Delta, though, is and they’ve had great prices with great service, not the cheapest price, but not the highest. Feels good, but i do love both.

      Appreciate your input here, talk soon CFW!

      -Lanny

  9. Hi Lanny,
    I bought back into DAL in May – I’d owned some shares a few years ago, then decided to sell because it wasn’t a real DGI stock, then I bought them back this year. What changed?

    I think they’re too cyclical for true long term dividend growth of the 25+ years’ kind, and I think it’s fairly easy for a initial low dividend payment to double or quadruple in size. Not a bad thing, I’ll definitely take it! But I like them as a company and think they’re pretty well managed – the fact that they pay a dividend now is a good sign for shareholders. It doesn’t hurt that I spent a fair amount of money on them whenever I fly back to the UK (DTW is a big DAL hub). Since I own AXP with an Amex Delta credit card, I feel I’m only helping myself a little when I book a flight with the card.

    I originally thought that airlines have a fairly wide moat too – certainly the larger ones have the better routes and lower costs with fleet management. But it’s a very competitive business and the low cost carriers (Spirit, Jet Blue) are keeping the larger carriers on their toes.

    Anyway, love the purchase and looking forward to seeing ever increasing growth on your monthly reports!

    Best wishes,
    -DL

  10. Congrats on the purchase and I hope it serves you well! I’ve been skeptical of all the airline stocks since the 2008 recession. Personally I’ve had the best experience with Southwest by far. If I every bought an airline stock, I’d consider them first. I’m more so focused on ETFs (with dividends) for both diversification and income.

  11. Great buy Lanny! I love DAL too, slowly adding more. Gotta love that Dividend Growth Rate!

    I guess this stock gives new meaning to my tagline: reaching new heights through dividend growth investing 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *