Should Income Investors Look At Southwest Airlines Co. (NYSE:LUV) Before Its Ex-Dividend?
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Southwest Airlines Co. (NYSE:LUV) is about to go ex-dividend in just four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Southwest Airlines' shares before the 20th of June in order to receive the dividend, which the company will pay on the 12th of July.
The company's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Based on the last year's worth of payments, Southwest Airlines stock has a trailing yield of around 2.1% on the current share price of $33.57. If you buy this business for its dividend, you should have an idea of whether Southwest Airlines's dividend is reliable and sustainable. So we need to investigate whether Southwest Airlines can afford its dividend, and if the dividend could grow.
View our latest analysis for Southwest Airlines
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Southwest Airlines paying out a modest 32% of its earnings. A useful secondary check can be to evaluate whether Southwest Airlines generated enough free cash flow to afford its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Southwest Airlines's earnings per share have fallen at approximately 28% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Southwest Airlines has increased its dividend at approximately 34% a year on average.
To Sum It Up
Is Southwest Airlines worth buying for its dividend? Southwest Airlines's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. Bottom line: Southwest Airlines has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of Southwest Airlines don't faze you, it's worth being mindful of the risks involved with this business. For example, Southwest Airlines has 2 warning signs (and 1 which is potentially serious) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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