Dividend Hike Makes Boeing Stock An Even More Compelling Buy

  • Boeing has bumped up its quarterly dividend to $1.09, which translates to a dividend yield of over 3%.
  • The dividend announcement was accompanied by a top up of $2 billion to the company's $12 billion share buyback program.
  • Share buyback supported earnings growth, Dreamliner sales and higher dividends make Boeing stock a more compelling buy.

The Boeing (NYSE:BA) company's board recently hiked its quarterly dividend by 20%, to $1.09/share, implying a dividend yield of 3% (in 2016) at the current price of $146.5 (Dec 15 close price). A 3% dividend yield, in itself, makes the Boeing stock a compelling long for income investors, However, apart from the good dividend yield, Boeing has a few other things going which make the Boeing stock an attractive long term play.

Boeing Earnings growth to accelerate in 2016

As covered in a recent post, Boeing looks set for record Dreamliner sales in 2016, which could see the company get close to break even on the model. Moreover, Boeing will shift product mix to higher margin models, which will drive earnings growth in the coming quarters. The positive effect could be significant on the bottomline, as margins could rise meaningfully.

In addition to the expected expansion in profit margins, Boeing earnings growth will also be supported by the current share buyback program. Boeing recently announced an expansion of the buyback program, increasing the size of the buybacks from $12 billion to $14 billion, having exhausted $6.75 billion of the initial authorization this year. The remaining buyback authorization of $7.25 billion equates to 7.5% of Boeing's market capitalization. A buyback of this scale could lead to a meaningful EPS expansion.

Boeing Financials

Boeing has registered strong topline growth in 2015. Revenue for the first 9 months is up 9.4% YoY, which is twice the 4.7% topline growth registered in FY 2014. While the earnings for the first 9 months have have seen a marginal YoY decline, investors will be excited by the better than expected performance in Q3 2015. The company beat the street estimates of $2.22 EPS in Q3 2015 by a good 30 cents, implying a solid 18% YoY growth.

When we consider the profit margin expansion, which will occur over the coming quarters, the Q3 earnings growth looks more than a flash in the pan. The strong topline growth, profit margin expansion and the huge share buybacks will ensure strong earnings growth at Boeing in 2016 and beyond.

Can Boeing sustain its high Dividend?

A dividend yield of over 3% is sure to cause income investors to flock to Boeing stock. Therefore, a critical question to answer is if Boeing can sustain such a payout. Boeing's dividend payout ratio through the first 9 months of 2015 has clocked in at 47.5%, which is higher in comparison to the 41% payout ratio in FY 2014. However, with an under 50% payout ratio, and expectations of strong earnings growth in 2016, this isn't something which could cause alarm bells to ring. Moreover, Boeing's free cash flow through the first three months of 2015 came in at $11.56/share, 4.2X the dividends paid out during the period. This should settle beyond all doubt ability of Boeing to sustain the current dividend payouts.

Boeing Stock Valuations

At a PE ratio of 18, Boeing trades at a slight discount to the 19.3 PE multiple of the S&P 500. However, what is more is interesting is the fact that Boeing trades at a P/CF ratio of 9, which is a significant discount to the industry's 12.4 multiple and 11.7 for the S&P 500.


Boeing looks set for a strong 2016, with significant levers to drive growth across the topline as well as bottomline. Strong visible earnings growth, large dividend payouts, attractive valuations and solid free cash flow make Boeing stock an attractive investment for 2016. The 20% hike in the dividend is the cherry on the cake.

Boeing stock is one for the taking. Buy now or you could be playing catch up once the bulls start to rush in larger numbers.

Virendra Singh Chauhan Virendra Singh Chauhan   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed 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.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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