New Buy: Delta Airlines Inc. (DAL)

Earlier this month I bought my first airline…or more accurately, I added shares of an airline to my portfolio for the first time.

On  January 12th I bought 25 shares of Delta Airlines Inc. (DAL) for a total of $1,283.75. In this post I break down my reasons for investing in this company and what this means for my dividend income. 

Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo in the United States and internationally. The company operates through two segments, Airline and Refinery. Its route network is centered around a system of hubs, international gateways, and airports in Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Minneapolis-St. Paul, New York-LaGuardia, New York-JFK, Paris-Charles de Gaulle, Salt Lake City, Seattle, and Tokyo-Narita. The company sells its tickets through various distribution channels, including delta.com and mobile, telephone reservations, traditional brick and mortar, and online travel agencies. It also provides aircraft maintenance, repair, and overhaul services; staffing, and professional security and training services, as well as aviation solutions to third parties; vacation packages to third-party consumers; and aircraft charters, and aircraft management and programs. As of March 14, 2016, the company operated a fleet of approximately 800 aircraft. Delta Air Lines, Inc. was founded in 1924 and is headquartered in Atlanta, Georgia.

The company has been paying dividends since 2013 – so not quite the long track record I like to see. However, the annualized dividend growth rate has been an astonishing 50%. From a dividend growth perspective this makes Delta Airlines attractive, also given the fact that the pay-out ratio is very low at 13.99%. The current yield is relatively modest – 1.36% – but I am not too concerned about that given the high growth percentage.

Delta Airlines’s Earnings per Share (EPS) show an impressive 5 year annualized growth of 41.8%. The current Price/Earnings (PE) ratio is 8.61, well below the 5 year average of 12.08.  

Both the current as well as the 5 year average PE are lower than the industry average, indicating that Delta Airlines is currently undervalued as compared to other airlines.

In their January 28 report S&P Capital IQ marks Delta Airlines as a 5 star strong buy with 12 month target price of USD 65.

Given Delta Airlines’ yearly dividend of $0.81 this buy means an addition of $20.25 to my forward dividend income.

What do you think about buying DAL? Leave a comment/reply to share your thoughts!

 

Investment Goals for 2017

Having just launched this site, I figured it would be a good idea to list my dividend investing goals for 2017.

My ultimate goal is to create a reliable and growing dividend income stream. However, I break down my ultimate goal into yearly goals to see how I am faring.

  1. Contribute 30,000 to the portfolio
  2. Achieve forward dividend income of 3,500 by the end of 2017
  3. Receive 3,000 dividend income throughout 2017
  4. Keep forward dividend income as a % of my Portfolio  at >3.5%
  5. Keep trading cost < 150 

#1 is pretty straightforward – but also the most stretching. Contributing 30,000 to my Portfolio in 2017 comes down to 2,500 a month, which will definitely require focus and discipline. However, I think it’s doable.

#2 entails getting my 12 month projected forward dividend income to 3,500 on the 31st of December. Given that my forward income right now is ~2,400 this goal is as ambitious as #1

Goal #3 is about the dividends I will receive between Jan 1st and December 31st of this year. My current projection for the year is ~2,400 so this means adding another 600 for the year. However, while every new buy will add income to my forward dividend income (goal #2), not every new buy means a full pay-out within calendar year 2017.

With goal #4 I track my forward dividend income (goal #2) as a percentage of my portfolio – ie my yield on cost (YOC).  In buying stocks I try to maintain a balance between high yielders (such as most REITS) and low yielders with above average dividend growth rates (stock like SBUX, DAL). Overall my goal is to obtain a minimum of 3.5% YOC.

Finally, goal #5 is about keeping my trading cost low. As I do not my consider myself a trader but an investor, my ideal holding period for a stock is forever. By definition this allows me to keep my trading cost modest – buy once and simply start collecting the dividend. As each new buy costs me 7.95 with Fidelity, I aim for no more than 20 trades in 2017.

What do you think about these goals? Leave a comment/reply to share your thoughts!