Delta Air Lines, Inc. (DAL): Is the Instatement of a Dividend a Good Idea?

On the other hand, its available seat miles (ASM), which are the total seats available for purchase, increased by 0.5% from 18.9 billion to 19 billion for the same period due to modifications in its aircraft to carry more passengers. Its load factor declined by 1%. Finally, its cargo ton miles declined by 3.1% from 193.8 million to 187.8 million. Overall, the airline saw a good performance.

Looking forward

Delta Air Lines, Inc. (NYSE:DAL) is reducing its costs of operation. It is increasing its available seat miles, while its load factor has not declined significantly. Its revenue should increase in the interim, and its net income should also increase. The airline is selling aircraft to increase its profitability. Also, the carrier is leasing aircraft which reduces its costs of operation. Companies save a huge amount of cash by leasing aircraft as opposed to financing them due to the high interest rates that they obtain.

Regarding the stability of the dividend, the company is in a good position. The carrier generated $1.1 billion of operating cash flow, and $457 million of free cash flow. This should put investors’ minds at ease. The company should be able to pay its obligations to its creditors and its shareholders.

Another statement that points toward Delta’s growth is its latest development. The carrier has inaugurated a new international terminal in the JFK international airport. The $1.4 billion terminal is composed of nine new terminals and seven remodeled terminals. This strategy suggests that Delta is growing.

The Foolish message

Most of the airlines establish share-repurchase programs to bring capital appreciation to their investors. However, it is not usual to see carriers offering a quarterly dividend payment. Delta Air Lines, Inc. (NYSE:DAL)’s free cash flow generation in the first quarter of 2013 shows a strong balance sheet. The company’s aggressive growth strategy should set the path for revenue to increase. Therefore, the dividend payment seems secure, and investors should expect hikes in the dividend offer as Delta’s debt is repaid.

The article Is the Instatement of a Dividend a Good Idea? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.