The Shocking Source of 2 Big Dividend Increases

By Markets Fool.com


Delta's airplanes aren't the only thing flying higher.

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Dividend investors scour the market looking for companies that will share their wealth with their stockholders. Yet over time, most investors learn which areas are likely to be promising and which will offer little. For decades, the airline industry was a barren desert for dividend investors, with most airlines proving more likely to declare bankruptcy than to find spare cash to return to shareholders. Yet times have changed dramatically, and two major airlines raised their quarterly payouts in just the past week alone. Let's look at these two shareholder-rewarding stocks and find out whether more money could be coming in the future.

Airline dividends fly higher
The less surprising of the two dividend-boosting airlines was Southwest Airlines , which raised its quarterly payout by 25% to $0.075 per share. Unlike all of its major peers, Southwest has a long history of dividend outlays, with the June payment marking the 155th consecutive quarter in which investors have received money from the company. That nearly 40-year track record is impressive for any company, but especially for airlines given their history of difficulty in maintaining profitability.

Meanwhile,Delta Air Lines decided on an even larger boost in its quarterly dividend. Starting in September, the airline will pay investors $0.135 per share every three months, marking a 50% increase from its current payout. Delta's dividend history is much younger than Southwest's, with the company having announced its first payout just a couple years ago.

Both companies' moves come as part of larger packages to return capital to shareholders. In general, airlines have performed extremely well in recent years, as smarter operations and an emphasis on finding new sources of revenue and cost reductions have paid off in soaring profits industrywide. Most recently, the plunge in oil prices has dramatically reduced fuel costs, and that latest positive trend motivated Delta and Southwest to send some of that windfall back to their investors.

Much ado about little?
Of course, it's important to put these dividend raises into context. Even after the increase, Southwest's stock will yield just 0.7%. Delta won't be much better with a yield of just 1.2%.

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Nevertheless, the lesson for dividend investors is that it's important to avoid having preconceived notions of where the best dividend stocks might be found. After years of struggling to become profitable, the formerly down-and-out airline industry could well remain a source of higher income for stock investors going forward if positive trends continue.

The article The Shocking Source of 2 Big Dividend Increases originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.