What’s that one thing that investors just love and want from every stock in their portfolio? Dividends! What else? Share buy-backs! Well, the American aero major Boeing (BA, Financial) is offering both to its investors. The jet maker announced an unexpected substantial hike in future dividend payments along with an increased share buy-back plan, making investors drop their teeth. The ecstatic happiness of the investors trickled down to the stock price that surged by 2.3% in afterhours trading, and analysts and industry experts believe this suggests Boeing is expecting bullish business environment.
The delightful announcement
Boeing has increased its quarterly dividend by a whopping 25% and has expanded the buy-back program to now repurchase as much as $12 billion worth of shares, making it the largest buy-back in the history of the company.
What made the hike in the quarterly dividend so surprising was that investors weren’t exactly expecting it at the moment. The hike will come in effect from the round that takes place on March 6 and the dividend for the three months period will increase to $0.91 a share, up from $0.73 a share, beating analyst estimates of $0.83 a share. If we look at the past, Boeing’s dividend payout ratio has always been great, exception being 2009 when it hit almost 90%. But in the recent years the payout ratio has been between 30% and 40%, suggesting that the company is rewarding its investors handsomely and at the same time retaining enough to fund its growth adequately. Here’s a look at the past annual payout ratio, and dividend payments compared to earnings per share.
Data source: Morningstar
So if we are to follow that trend, we can safely assume, if Boeing is increasing its dividend, it surely expects its earnings to go up.
Next, the expansion of the share buy-back program is also of special interest to the investors. It replaces the existing $10 billion program and repurchases are due to be made over the next two to three years. According to Boeing management, strong performance of the company across its businesses is helping in the generation of robust cash flow, resulting in a fundamentally strong company.
The growth drivers
Boeing is working hard to grab a bigger share of the commercial jet market. The company is already the leader in the wide-body segment and is now attempting to overshadow its European peer Airbus (EADSY, Financial) in the narrow-body game. Among the buyers the A320 and its re-engineered version A320neo are much popular. To give Airbus a tough competition, Boeing is working on the 737 MAX which is expected to hit the skies in 2017. The 737 Max is the upgraded version of the very successful 737, and brags about its ability to delivery best in class fuel efficiency and top-notch flight experience.
The Chicago based company is also very bullish on the 787 Dreamliner and 777X. The clean slate 787 has turned out to be an extremely popular model and the company expects to break even on cash flows next year. Even the 777X has attracted a lot of appreciation and Boeing has a backlog of more than 200 units for the jet. The 777X will enter service in 2020. So, once all the three jets – 787 Dreamliner, 737 MAX and 777X – star functioning together, it will bolster the company’s revenues and cash flows, which can be expected to trickle down to the company’s bottom line. This will automatically help in rewarding investors. Out of 27 analysts, 33% have a strong buy rating on the stock, 30% have a buy rating, 33% have a hold rating, and only 4% believe it’s better to sell the stock. So, all in all, Boeing seems to be a must have stock for any dividend seeker.
