Hawaiian Air to pay first dividend ever

Hawaiian Airlines, which has survived two bankruptcies during its 88 years of operation, caught the investment public by surprise Friday when it announced plans to offer its first-ever dividend.

Parent company Hawaiian Holdings Inc. declared a quarterly dividend of 12 cents a share to be paid Nov. 30 to shareholders of record. The annual commitment for the company is $26 million, or 48 cents a share.

“Today’s announcement underscores our commitment to building long-term shareholder value,” Hawaiian Airlines President and CEO Mark Dunkerley said in a statement. “This dividend program reflects our confidence in the strength of our business, future growth potential and continued free-cash-flow generation. Hawaiian’s strong financial results have allowed us to grow the business profitably while strengthening our balance sheet. The decision to initiate a quarterly dividend is the natural next step to increase returns to our shareholders.”

Although the annualized dividend yield is just 1.26 percent based on Friday’s closing price, the payout represents a bonus for longtime investors who saw shares of the company hover around the $2 mark for years and drop to as low as 30 cents in 2003 when the company was in its second bankruptcy.

Hawaiian’s announcement comes at a time when its stock has tumbled amid increased competition that soon will be entering the market.

United Airlines is planning to increase its Hawaii service by about 20 percent starting in December while Southwest Airlines said Wednesday it will sell tickets to Hawaii starting next year.

Hawaiian, which is scheduled to announce its third-quarter financial results Thursday, has seen its stock plunge 33.4 percent this year to $37.95 after trading above $60 as recently as December. The company’s shares fell $1.05, or 2.7 percent, Friday and have fallen 6.3 percent over the last three days. Several analysts have lowered their target price for the stock amid the upcoming competition.

Dunkerley said Friday on an investor conference call with analysts that the timing of the dividend declaration was coincidental in that it came on the heels of Southwest’s announcement.

“It would be nice to think that we were so fleet of foot that we could organize timing around other people’s announcements,” he said. “But this is something that we had done before, obviously. We had to do things like convene a board meeting. It’s something you don’t do in a matter of hours. It’s been in the works for a while, and it’s just a coincidence it all came out on (virtually) the same day (as Southwest’s announcement).”

The state’s largest carrier has been steadily growing and diversifying its revenue stream over the last several years while using improved earnings to invest in the business and pay down debt.

“We are fundamentally a stronger company today than we were just a few years ago,” Chief Financial Officer Shannon Okinaka said in a statement. “Today’s announcement is part of our disciplined approach to capital deployment that will balance continued investment in our business with a sustained return to shareholders.”

The dividend declaration follows a $100 million share repurchase program that the company announced in April. When Hawaiian buys back stock, it is a signal that the company believes its shares are undervalued. The buyback makes each share held by investors more valuable because they would then hold a greater percentage of ownership in the company.

As of Sept. 30, Hawaiian had repurchased about $50.5 million in shares, leaving $49.5 million remaining under the $100 million share repurchase authorization that expires in May 2019. In the third quarter alone, Hawaiian repurchased 1.1 million shares worth $46.2 million.

Dunkerley said paying a dividend was another way to express the company’s confidence in its long-term future.

“What we’re trying to do is signal the long-term confidence that we do have while at the same time saying we’ve got a stock buyback program, and whenever we think the stock is cheap, we’ll buy back aggressively,” he said on the conference call.

Dunkerley never mentioned Southwest by name on the 31-minute call, but it was clear from his comments that he was sending a message.

“We have the best combination of costs and revenue-generating potential of any airline flying into this market on any route,” he said. “We have a balance sheet that we believe is strong enough to withstand the sort of short-term pulses of capacity that come in and then dissipate. We have a better understanding of this marketplace than any other airline could possibly acquire ever, and I have a track record and a management team and, most importantly, fine employees, who execute well on a day-to-day basis. So as we sit here and look at our situation and look at our competitors and look at the markets we’re in, we wouldn’t trade places with any single one of them. Thar’s our core basis for our confidence going forward.”