Transport ETFs Lifted by Airlines’ Shareholder Friendliness
May 15th, 2014 at 7:30am by Tom Lydon
Seasoned dividend investors have never confused airline stocks with consumer staples, utilities or any number of other well-traveled dividend destinations.
Saddled with the always present and massive fuel and labor costs, airlines seemingly have built-in excuses for being bigger dividend payers or more prolific repurchasers of their own shares. However, that is starting to change and the new found shareholder friendliness is boosting transportation ETFs.
With no airline-specific ETFs on the market, the iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN) suffice for investors looking for airline industry exposure without the commitment or risks of a single stock. [Transport ETFs Flirt With New Highs]
Over the past month, the $898 million IYT and XTN are both higher by slightly more than 6%. Over that time, airlines have started lavishing rewards on shareholders, though to be fair, Delta Airlines got the ball rolling last year when it announced a $1 billion share repurchase plan. Atlanta-based Delta followed that up last week by boosting its payout 50% and doubling the buyback plan to $2 billion.
Delta occupies a 3.2% weight in IYT and is 2.8% of XTN. XTN is an equal weight product and no stock accounts for more than 2.9% of the ETF’s weight.
On Monday, Alaska Air added $650 million to its buyback plan after boosting its dividend 25% in February, reports Kevin Kingsbury for the Wall Street Journal. On Wednesday, Southwest Airlines (NYSE: LUV) boosted its dividend 50% while adding $1 billion to its buyback program, according to the Journal.
Alaska Air and Southwest combine for over 7% of IYT and 5.1% of XTN. [Transport ETFs Looking Good]
Southwest has a lengthy history of paying dividends, but the 2012 increase to a paltry penny per share per quarter was the company’s first dividend hike since 2001.
By comparison, Union Pacific (NYSE: UNP), IYT’s largest holding with a weight of 14.2%, has raised its dividend 800% since 1998 to 91 cents a share per quarter from 10 cents a share.
That is to say transportation ETFs have a long way to go to become dividend ETFs. After all, the average trailing 12-month yield on IYT and XTN is 0.75%. However, the recent airline buyback and dividend announcements have been positive catalysts for the ETFs.
iShares Transportation Average ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.