Let’s Fly with the Dividends. AAL

My airline stock has been dropping a whole bunch.  The recent high of American Airline (AAL) in the last few months was $41.34. Now they are trading for only $33.28, which is about a 20% drop.  That is a significant drop in a short time.  Let’s look to see what we should do and should I fly with the dividends.

The Sky

Background

American Airline (AAL) fly’s planes for a living.  At the end of 2015, they have about 950 mainline and almost 590 regional aircrafts.  They fly to over 50 countries and have 350 destinations.  They were founded in 1934 and they are headquartered in Fort Worth, Texas.

Valuation

Currently, American Airline (AAL) has a very cheap valuation.  Currently, their PE is about 3.0, which is extremely low, which means the market is predicting bad things to come.  The PS is also only 0.47.  Again, very cheap.  We believe a big part of the recent share price falling is because of PRASM (Passenger Revenue per Available Seat Mile) going down, even though overall profits went up during the last call.


Future

With the risk and rewards in the previous section, we believe American Airline (AAL) will offer an above average chance to be a great dividend payer on YOC (yield on cost) at current prices.  Reading the conference calls, we believe that American Airline (AAL) is going to continue to focus on share buybacks.  After the company’s stock raises in value, we speculate that they will focus on paying down debt and raising their dividends.

Fly with the Dividends

American Airline (AAL) has only been paying a dividend since July 2014.  They have been steadily paying $0.10 a quarter for the last 8 quarters or 2 years.  Once their share buybacks slow down, we predict dividend increases.  In the last year with the share buybacks, dividend payments have decreased from $70 million to $61 million per quarter.  This is even considering the steady dividend / share payment over that same time period.  With their large share repurchases, when dividends became more important, this will leave a lot of room to grow it.

What I bought

We recently bought more shares only 42 days ago.  With the continuing weakness, we are wondering if we are buying into this stock too early or if we are wrong.  But with all of the money they are making, we feel good about this buy.  And with our diversification, we feel good that we can ride the wave.

We bought another 5 shares of American Airline (AAL) for $173.38, which includes those commissions to pay for business trips.  While they have a small yield now, we believe we have a good risk reward ratio for eventually having a great YOC for us.  With the additional shares, we are earning $8.00 a year from American Airline (AAL).  How do your dividends fly?

View more stock purchases post to continue with our journey.

Do you think we should continue flying with the dividends with American Airline (AAL)?  Join in and share your thoughts in the comment section below.

Disclosure:

  • AAL – We own shares.

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