Fly Leasing: The Case For Sustainable Dividends

Fly Leasing (NYSE: FLY) operates as a global aircraft leasing company amongst larger competitors such as Aircastle (NYSE: AYR), Air Lease (NYSE: AL), Avolon Holdings (NYSE: AVOL) and AerCap Holdings (NYSE: AER). While FLY is currently the smallest within the group, it also has the lowest valuation multiples despite maintaining the highest dividend yield at 7.7%. Much of the stock's market capitalization is contingent upon this high yield, which while satiating income investors, still begs the question to all: Is the Dividend Sustainable?
We must first look at the company's cash flow from operations: We add the depreciation expense into the net income figure to figure out how many dollars are coming in the door.
Depreciation expense of roughly 200 million in fiscal 2015 is added to an expected annual income of roughly 55 million. Cash flow from operations is therefore 255 million dollars per year. After the dividend, this leaves us with 214 million. We must consider this in light of the principal repayments schedule:
(Source: 2014 Annual Report)
The deficits of 2015 are almost perfectly balanced by the surpluses of 2016 and 2017 given all cash flow furnishes the dividend and repayments necessary. Yet in 2018 and 2019, we are short 319 and 244 million dollars. How does management provide the capital without a dividend cut?
The three years prior, 2015, 2016, and 2017, will have provided at least 55 million dollars in net income, which will therefore increase the... Read more