Boeing Co (NYSE:BA) may be very familiar to investors, but it is under appreciated. Sure, most know it as the high-profile maker of fighter jets, military transports and iconic passenger jets. BA stock has been a Dow 30 component for more than 30 years.
Though it’s a cyclical industry, it’s also a growth industry. What many investors don’t fully appreciate about the company is that the Boeing stock dividend is surprisingly generous, particularly in light of the nature of the business. Companies that are cyclical, industrial and/or capital intensive generally don’t concern themselves on anything but growth, with any dividend payout serving more as a token of appreciation than the primary purpose of ownership.
So how generous is the BA stock dividend? Keep reading, bearing in mind that Boeing’s top line has been falling since late 2015.
Oversized Payout
With a dividend yield of 2.2%, BA stock is more or less in line with its peers, and more less than more more. The Dow Jones Industrial Average Index‘s yield right now is closer to 2.7%, underscoring the notion that neither Boeing nor investors view BA stock as a dividend play.
And yet, the dividend payout the company consistently dishes out is a remarkable 50% of its per-share profits. That is to say, for every dollar of net income the company produces, it gives 50 cents back to investors.
It’s a significant chunk of its income that could — theoretically, at least — be re-invested in a way that creates even more growth. For perspective, defense rival Raytheon Company (NYSE:RTN) sports a payout ratio closer to 40%, while Northrop Grumman Corporation (NYSE:NOC) returns less than a third of its profits with shareholders.
Though relatively oversized, Boeing’s sizeable payout hasn’t mattered much in the past; the company has had more than enough wealth to share. In light of the sales headwind the organization has faced over the past year and a half, however, investors are understandably concerned the dividend could be pressured.
They don’t need to worry all that much.
BA Stock Dividend in Focus
For the quarter ending in June, the 8% dip in Boeing’s top line marked the fourth-straight quarter that year-over-year revenue has fallen in response to a sales headwind. That headwind actually materialized in the last quarter of 2015, as economic turbulence forced airlines to rethink their capital spending plans. Delta Air Lines, Inc. (NYSE:DAL), for instance, cancelled a $4 billion deal with Boeing late last year, effectively saying the need for new 787’s just wasn’t there.
It wasn’t just Boeing on the receiving end of bad news though. As far back as 2015, United Continental Holdings Inc (NYSE:UAL) postponed the delivery of several planes ordered from Airbus (OTCMKTS:EADSY), with United CEO Doug Parker explaining: “We have a lot of flexibility with our old aircraft and new aircraft coming in, whether we keep old aircraft longer or retire them with new airplanes. Pushing these [orders] back gave us a little more flexibility to not need to grow. We may still grow, but it doesn’t require us to grow.”
Translation: Passenger traffic just isn’t as brisk as we thought it would be.
Thing is, while tepid demand for aircraft has taken a toll on Boeing’s top line, the aircraft maker has still managed to grow its bottom line, as well as its per-share profits of BA stock.
The graphic below speaks for itself. Looking past the pair of wild swings from the middle of last year (swings reflecting accounting adjustments rather than business conditions, by the way), income and per-share profits have been and continue to rise.
The short version of the long story of how Boeing managed to do the seemingly impossible: Better management of its supply chain and cost-effective engineering solutions. More importantly right now, the company’s capacity for cost controls means the Boeing stock dividend isn’t apt to suffer anytime soon.
Bottom Line for BA Stock
Sure, it would be great if Boeing could beef up the top line and still keep a lid on spending, as that would open the door to even bigger dividend payouts. What’s also been somewhat overlooked, though, is that revenue growth is in the cards.
It was noted above that the passenger jet business is a cyclical one, but that cycle is only partially influenced by economic cycles. An aircraft’s useful life is limited, and though airlines can stretch that lifespan out, they can’t prolong it forever. Sooner or later, they’ll have to outright buy new ones.
To that end, a wave of aircraft replacement looms that should prove very fruitful for Boeing. The company said last year that a wave of demand for planes like its 777 and 787 would materialize between 2021 and 2028, as airlines phase out aging equipment. Though the planes that airlines end up buying may change, the need for them won’t. The recent order from India’s Jet Airways for 75 of Boeing’s 737 Max jet may be an indication that demand is already starting to swell again.
In other words, not only is the BA stock dividend safe, a lean-running Boeing may soon actually be able to ratchet its payout up at a faster rate than it has in the past.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
