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Alaska Air Group board answers Wall Street’s incessant request with a dividend

Post by John Gillie / The News Tribune on July 11, 2013 at 10:33 am |
July 11, 2013 10:38 am
Horizon Air Bombardier Q400
Horizon Air Bombardier Q400

SeaTac-based Alaska Air Group Thursday announced it will begin issuing a quarterly cash dividend next month.

The airline holding company will pay shareholder of record on Aug. 6 a 20-cent-per-share dividend on Aug. 22.

The holding company owns Alaska Airlines and its sister carrier, Horizon Air.  The dividend will be in addition the multi-year stock repurchase program the airline company has initiated.

Wall Street analysts, noting the airlines’ growing pile of cash in recent quarters have repeatedly quizzed the airline when it will begin distributing that money to shareholders in the form of a dividend.  Until Thursday, Alaska’s answer has always been that the board of directors was considering a dividend, but hadn’t decided that the time was right.

“We’re pleased to introduce a dividend as a supplement to our ongoing multiyear stock repurchase program. The combination underscores the board’s commitment to build long-term shareholder value,” Alaska Air Group President and CEO Brad Tilden said Thursday. “Alaska’s strong financial results over the past several years have allowed us to pay meaningful bonuses to our employees, profitably reinvest in our business and grow our network while significantly reducing debt, keeping our pensions well funded and returning capital to our owners. We believe these financial results are sustainable and a dividend now makes sense as part of our balanced capital allocation strategy.”

Alaska joins Delta Air Lines in initiating a dividend payback to shareholders.

As airlines have become more profitable in recent years, they’ve resisted committing to a dividend payout in part because of the volatility of the industry.  Airlines with ample cash reserves such as Alaska were better able to withstand big fluctuations in their business than airlines with little in the savings accounts.

Only Alaska and Southwest among the nation’s larger legacy carriers were able to operate through the 9-11 terrorist aftermath and the 2008 recession without making a trip to bankruptcy court.

The news of the dividend had little initial impact on the airline’s stock price.  At midday Thursday, the stock was selling for $58.32 a share, a 1.36 percent jump over Wednesday’s closing price.

The effects of the stock repurchases and now the dividends on the air group’s stock prices isn’t clear.   The airline holding company’s stock is selling for more than $9 per share less than its 52-week high.  While no one can say for sure what drives the demand for stock, increased competition in some markets especially in Alaska and a weakening of the market to Hawaii may have had a role in the stock price decline.

“Alaska Air Group intends to pay a dividend each quarter, however, future amounts and payment dates are subject to the determination and approval of the company’s board of directors,” said the holding company.

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