Boeing Co Takes Flight with Big Dividend, Buyback Boost

BA stock - Boeing Co Takes Flight with Big Dividend, Buyback Boost

Shares of Boeing Co (NYSE:BA) continued their ascent Tuesday, rising 2.4% and hitting new 52-week highs near $293. What got BA stock price moving higher, pushing its year-to-date gains to 86%? Simple, the company gave a bump to its dividend and buyback program.

Boeing management announced a 20% increase to its quarterly dividend. It will now pay out $1.71 per share each quarter, up from $1.42. Over the last five years, BA has raised its dividend more than 250%, an impressive stat when you think about it.

For those who don’t think of Boeing as a dividend titan, it’s time to change that tune. Its payout may not be 3.5% anymore, but I think we would all sacrifice 125 basis points of yield for an 80% return. For the record, Boeing has also paid out a dividend every quarter for 75 straight years, a strong record that doesn’t get enough attention.

Further, Boeing announced that it’s replacing its $14 billion buyback plan with an $18 billion plan. The near-30% increase should help the company retire even more shares, giving a helping hand to boost its earnings per share.

So Where Does That Leave Boeing?

Quite clearly, Boeing is a cash-flow generating monster. At the end of last quarter, BA stock had 5,700 aircrafts in its backlog worth $474 billion. Let’s put it this way, Boeing will make about 750 commercial planes this year and the backlog represents roughly seven years worth of production.

Even with a global recession (although none are on the horizon) and canceled orders, Boeing will have plenty of work to do in a downturn.

In fact, CEO Dennis Muilenburg was recently on CNBC, explaining how there will be 100 million passengers flying for their first time in Asia this year. 100 million. That’s almost one-third of the U.S. population. As the economy continues to improve and the population continues to grow, the demand for planes will grow.

That only means one thing for the world’s top jet producer: More business.

While Airbus (OTCMKTS:EADSY) generated plenty of buzz from the weeklong Dubai Air Show in November, Boeing pulled in a notable amount of new orders too. The plane-maker snagged almost $50 billion worth of new orders.

As a result, its backlog only grows deeper. That should help keep the cash-flow machine churning. Over the past 12 months, Boeing has generated over $11 billion in free-cash flow. It’s no wonder it increased the dividend by 20%. Arguably, an even larger bump would have been an easy feat.

While BA may trade with a price-to-earnings ratio of 26, investors can justify it because of the business model. There’s a ton of visibility and that helps investors sleep soundly. And while its trailing price-to-free-cash-flow of ~15.9 is above its average for the past few years, it’s nowhere near its highs over the last five years.

Trading BA Stock Price

It’s tough to come in now, a hair under $300 and load up on the stock. After all, BA stock price was at just $210 in July. It’s stock sports an overbought reading on the relative strength index (blue circle). In fact, with each new rally, BA stock price only seems to gain more momentum.

chart of BA stock price
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Source: Chart courtesy of

Now sporting a market cap of $172 billion, how much room could be left? Unfortunately for those that aren’t long, don’t look for a big correction any time soon. If we’re lucky, we’ll see $265-$270 sometime soon as a good level to load up at, but I wouldn’t bank on it.

Investors interested in the long-term business could consider buying on a retest of $280. That’s a short-term level of consolidation. They could also add if BA stock price gets back down to its 50-day moving average.

The issue here is simple: With a stock this strong, it’s hard to go all-in at this point. Many investors are best off starting with an initial position and adding to it on a decline. If it rallies too far, well, worst case is we have a smaller-than-hoped-for winner, but a winner nonetheless.

Without a U.S. or global recession in sight and increasing plane demand, there’s really only one direction left for BA stock price.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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