Boeing Co (NYSE: BA) made news in the days before Christmas with a big announcement that it will be raising its dividend 22% this year and begin a $20 billion stock buyback program. So is now the time to buy BA stock?
Since the Dow Jones is a price-weighted average, BA helped the Dow power above other averages on the news. A price-weighted average means that stocks with higher prices have a higher weighting in the average. That means, when a high-priced stock like BA rallies, it carries the average with it.
The same thing happened last year. BA stock was doing well and many Dow stocks weren’t. The DJIA kept moving higher, largely on the back of BA.
That said, BA is an A-rated stock in my Portfolio Grader, so I’m not saying that last week’s rally wasn’t deserved — though the gains were lost on Christmas Evie. In the sessions following the Christmas Eve carnage, BA stock has recovered to its trading levels from before the announcement.
BA Stock Has Room to Fly
As one of the top 2 commercial airline makers in the world, Boeing is part of a significant megatrend in air travel. In the West, many of the planes in use are getting older. And while a plane can fly for a very long time, there comes a point where maintenance starts to become more expensive and starts eating into the margins.
What’s more, older planes are generally less fuel efficient, so there’s a balancing act between hanging onto an old plane and eating the costs, or buying a new plane that saves you on those costs.
Add to the growing demand for newer, more efficient planes to replace an aging fleet in developed nations with the surging demand from Asia for planes to supply a new population of fliers.
China has a huge, expanding middle class. According to a McKinsey & Company study, China’s middle class will reach 550 million by 2022. That’s significantly more than the population of the entire U.S.
And the demand for air travel isn’t limited to a huge population with more disposable income. It also means more travel to and from China as well.
This is all very bullish for BA.
Its only challenge at this point is the trade war between China and U.S. If you look at a price chart of BA in the past year, you can see how the stock has risen and fallen, largely due to the trade headlines between the U.S. and China.
Uncertainty is poison to the markets and BA is a good example of a massive blue chip company that is getting knocked around due to questions about trade with one of its biggest growth markets.
BA recently open a completion factory in China for its 737s, with the expectation of producing about 100 planes a year in the facility. This was a sign of good will to the Chinese government that BA is committed to China.
But it’s not just China where BA sees opportunity. It predicts it will deliver 2300 planes to India’s low-cost carriers over the next 20 years.
So, to answer my initial question: No, don’t buy BA for its dividend hike. Buy BA for its growth potential AND its dividend hike.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.