Look up; there's a new dividend flying in the skies. Hawaiian Holdings (NASDAQ:HA), the parent company of Hawaiian Airlines, has initiated a shareholder distribution. 

That puts it in good company within its industry. Most of the big U.S. carriers -- we're talking Southwest Airlines (NYSE:LUV), Delta (NYSE:DAL), and American Airlines Group -- also pay dividends. Unlike those carriers, though, Hawaiian's stock is down on the year. Will handing out a dividend, then, help reverse that trajectory and send Hawaiian's shares into a climb?

Plane taking off at dusk.

Image source: Getty Images.

Flying low

Hawaiian's payout will be dispensed quarterly, and its initial level will be $0.12 per share. It will first be doled out on Nov. 30 to shareholders of record as of Nov. 17. Using the company's recently reported Q3 per-share adjusted earnings figure, the payout ratio is an encouragingly low 6%. 

If the dividend were mashed against the company's most recent closing stock price, its yield would be 1.2%. That's low for the broader market, but it's not bad for the sector; Southwest and American both currently pay out at a mere 0.8%, although Delta is a relatively spendthrift with its 2.3% yield.

A new dividend certainly adds interest to a stock, and ideally can lift its share price if the amount is generous enough.

Hawaiian's shares could use the help; they dove in the summer, particularly after United Airlines (NASDAQ:UAL) announced that it would increase service on 11 routes connecting the U.S. mainland with Hawaii.

Compounding that, Southwest strongly hinted it would inaugurate service to the state. Fears grew of the dreaded "Southwest Effect" -- in which average prices to a destination apparently fall by $45 per ticket when the Texas-based carrier strides into town.

Those news items created turbulence that buffeted the stock price. From a high of nearly $56 per share before United and Southwest promised to barge into the cabin, Hawaiian's stock now trades barely above $40. It's down by 27% on the year, in sharp contrast to the gains enjoyed by some of its peers.

HA Chart

HA data by YCharts.

A feisty islander

Hawaiian's CEO Mark Dunkerley projected confidence in the face of that mounting competition, saying on a recent CNBC appearance that "we have the right product for this marketplace, we compete against effectively everybody... we've succeeded against all of them, we don't anticipate things being different in the new environment either."

Of course part of Dunkerley's job is to spin potentially negative developments, but for the most part I buy this argument.

I have two key reasons for this. First, Hawaii has always been a hot tourist destination fought over by the nation's top carriers; no wonder there are frequent sales on tickets to there. And second, Hawaiian does plenty of its business with international and inter-island flights -- the former segment, in particular, has been growing robustly -- so it's not fully dependent on mainland U.S. travelers. 

The proof is in the company's performance. In Q3 it managed to lift revenue by 7% on a year-over-year basis (to almost $720 million), on the back of key metrics that rose at encouraging rates. Adjusted net profit of almost $103 million was essentially flat but still managed to beat the average analyst estimate, and represented a nice margin of 14%.

Holding pattern

Hawaiian's a good airline, a sturdy survivor in its ever-competitive core market. As such, I think its stock is unfairly taking it on the chin -- especially considering that the feared Southwest won't be able to enter the market until mid-2018 at the very earliest

That said, the quick one-two punch of the United and Southwest pronouncements clearly has the market concerned, and it'll likely remain averse to Hawaiian for some time. Unfortunately, I have to be pessimistic here and forecast that the company's stock will continue to be an underperformer, in spite of the fresh presence of the dividend. Many investors are still too spooked to touch the stock.  

This sets up Hawaiian as a good contrarian play for those patient enough to wait out the situation, however. Even if United and Southwest end up being worthy competitors for the domestic Hawaii business, the state's namesake carrier can handle the competition and should continue to do well in the international arena. I think this is a fine opportunity to pick up shares in Hawaiian.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.