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UAL dividend on the runway
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November 1, 1999: 4:46 p.m. ET
United Airline parent looking at $1.25 annual payout; other carriers may follow
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NEW YORK (CNNfn) - UAL Corp., the parent of United Airlines, announced plans Monday for its first dividend since 1987.
The company said it is looking at a dividend of $1.25 a share annually. It also announced plans to purchase up to $300 million of the stock.
"The proposed dividend marks a significant turning point for UAL Corp.," said James E. Goodwin, its chairman and chief executive. "We have worked hard to attain our position of earnings stability and we are confident in our ability to return cash to our stockholders on a regular basis."
The plan still needs the approval of shareholders of UAL (UAL). That vote is expected at its annual meeting next May.
Airline dividends: Slim and none
It would give the airline the largest dividend in the industry by far. Most airlines customarily have not paid dividends on their common stock, making the prices more volatile and yielding lower price-to-earnings ratios, said Ray Neidl, analyst at ING Barings. The exceptions are Delta Air Lines (DAL), which pays 10 cents annually, and Southwest Airlines Co. (LUV), which pays 2.2 cents annually. Neidl said he expects that custom is about to change.
"They're generating surplus cash flow. Now they're thinking to entice the market and show there's more stability in the industry, they should have strong dividends," he said. "The risk is you have to maintain your cash flow, in good times or bad."
UAL has an advantage over many of its competitors since dividends paid to employees would be tax deductible, and about 55 percent of its stock is held by employees. The employees, led by the Air Line Pilots Association and the International Association of Machinists, bought a majority stake in the airline in 1994.
Officials of those two unions did not have any immediate comment Monday on the dividend plan.
Weak market for airline stocks
United is the nation's largest airline. In the third quarter, UAL reported net income of $456 million, or $3.75 a share fully distributed, just below the $3.76 a share projected by First Call. But officials at the carrier promised better than expected results in the fourth quarter. Revenue at UAL in the quarter was $4.84 billion, up 1.3 percent from $4.78 billion a year ago.
Neidl said the dividend being proposed for United is a relatively healthy one, no matter the industry, and probably enough to help its stock price. But he wasn't ready to change his recommendation or target price just yet. He has a "neutral" rating on the stock and many other airlines.
"I think this is a sideways market for airlines," he said. "November and December are always soft market for airline stocks."
The dividend plan didn't help UAL in trading Monday. It was off 3-5/16, or 5 percent, to close at 64-3/4. But that was in line with the sector, as decreases ran from 2 to 6 percent for the seven largest passenger carriers.
"Fuel prices are up, and to a large extent we're being driven by fuel prices," Neidl said.
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UAL Corp.
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