Boeing Stock Presents A Combination Of Value And Dividend Growth

  • Boeing stock presents an excellent combination of good value and a high growth dividend stock.
  • Boeing generates strong cash flow and returns substantial capital to its shareholders through stock buybacks and growing dividend.
  • The average target price of the top analysts is at $143.63. However, in my opinion, Boeing stock price could go much higher.

In my view, Boeing (NYSE:BA) stock should be included in every diversified, large-cap dividend stock portfolio, and now is the right time to buy the stock. On December 14, 2015, Boeing increased its quarterly dividend by 20% to $1.09 per share and raised the authorization for its share repurchase program to $14 billion. Boeing has been paying uninterrupted dividends since 1962. The forward annual dividend yield is pretty high at 3.25%, and the payout ratio (Total Dividends/Net Income) is at 50.7%. The annual rate of dividend growth over the past three years was very high at 28.3%, over the past five years it was high at 17.9%, and over the last ten years it was at 13.8%. I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most crucial factors for dividend-seeking investors, and Boeing's performance has been excellent in this respect.

On January 27, Boeing reported its fourth quarter 2015 financial results, which beat EPS expectations by a big margin of $0.32 (25%). Revenue of $23.6 billion in the period also surpassed Wall Street forecasts of $23.5 billion. Boeing showed significant earnings surprise in all its last ten quarters, as shown in the table below.

Boeing extended its leadership in the aerospace industry in 2015 with record deliveries and revenues in commercial airplanes, and solid sales and healthy margins in its defense and space business. The company also generated significant cash flow to fuel investments in innovation and provided compelling returns to its shareholders. For the current year, Boeing expects to earn $8.15 to $8.35 per share. Revenue guidance is between $93 and $95 billion, including commercial deliveries of between 740 and 745. Operating cash flow is expected to come in at $10 billion. In comparison, Wall Street analysts were projecting the company to earn $9.43 per share on revenue of $97.17 billion.

I see strong revenue and earnings growth prospects for the company. To confirm my premise, I have gathered from Boeing's quarterly reports the following data for the last eighteen-quarters:

  • The company's total backlog
  • Commercial airplanes booked in each quarter
  • Commercial airplane orders at end of each quarter
  • The value of the entire airplanes ordered

I have calculated the compounded annual growth rate (CAGR) for these parameters, and I found out that Boeing's backlog has increased 9.7% annually from $323 billion in the second-quarter of 2011 to $489 billion in the fourth-quarter of 2015. Also, its total commercial airplane orders have increased at an annual rate of 13.4% from 3,300 airplanes in Q2-2011 to 5,800 in Q4-2015, and the value of the total airplanes ordered has grown at 11.8% annually, from $262 billion to $432 billion, as shown in the table below. These impressive growth rates in the last eighteen quarters lead me to the conclusion that Boeing will continue to prosper, and I expect double digit growth for the company.

 

 

  

Boeing Stock Valuation

Since the beginning of the year, Boeing stock is down 7.4% while the S&P 500 Index has increased 0.3%, and the Nasdaq Composite Index has lost 4.2%. Since the beginning of 2012, Boeing stock has gained 82.6%. In this period, the S&P 500 Index has increased 63%, and the Nasdaq Composite Index has risen 84.1%. According to TipRanks, the average target price of the top analysts is at $143.63, an upside of 7.2% from its March 18 close price, however, in my opinion, Boeing stock price could go much higher.

BA stock chart

Source: Boeing stock price chart by amigobulls.com

Boeing's current valuation is attractive; The forward P/E is low at 14.19, the enterprise value-to-EBITDA ratio is also low at 9.63, and the price to sales ratio is very low at 0.92. The average annual earnings growth estimates for the next five years is high at 10.49%, and the PEG ratio is at 1.39.

In addition, most of Boeing's Return on Capital parameters have been much better than its industry median, its sector median and the S&P 500 median as shown in the table below.

Source: Portfolio123

During the last quarter, the company repurchased 5 million shares for $0.8 billion and paid $0.6 billion in dividends. For the full year, the company repurchased 47 million shares for $6.8 billion and paid $2.5 billion in dividends. Based on strong cash generation and outlook, in December, the board of directors raised the share repurchase authorization to $14 billion, replacing the authorization approved in 2014 of which $5.3 billion was remaining, and increased the quarterly dividend by 20%. Share repurchases under the new authorization are expected to be made over the next two to three years, which should drive EPS growth over the time period.

Conclusion

Boeing stock presents an excellent combination of value and a high growth dividend stock. The company has recorded substantial growth in the last few years. Boeing’s annual average EPS growth over the last five years was high at 10.9%, and the average annual estimated EPS growth for the next five years is also high at 10.5%. Moreover, the company generates strong cash flow and returns substantial capital to its shareholders through stock buybacks and growing dividend payments. The average target price of the top analysts is at $143.63, presenting an upside of 7.2% from its March 18 close price. However, in my opinion, Boeing stock price could go much higher.

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Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

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The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

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