Is Boeing's Dividend Safe Amidst Recent Tragedy?

by Rob Otman
Boeing Dividend Safe

On March 10th a Boeing 737 MAX 8 aircraft flying out of Ethiopia crashed killing all 157 people onboard. Just five months prior to this tragedy, a Boeing 737 MAX 8 nosedived off the coast of Indonesia killing all 189 of its passengers. Aviation authorities have responded to these crashes by grounding all 737 MAX 8’s indefinitely.

Boeing (NYSE: BA) has faced serious scrutiny and may have lofty financial obligations to fulfill. The stock has fallen 11%, and investors are worried. Let’s take a look at how these tragic events affect Boeing’s dividend profile.

Assessing the Damage

Boeing is a $210 billion business, and last year the company pulled in $101 billion in sales. Boeing already has a massive backlog of orders for 2019. This leaves investor to wonder if Boeing’s aircraft is defective, or if these tragedies are due to human error.

According to an article published by the Aircraft Owners and Pilots Association, aviation expert Fred Tecce thinks the problem is human error:

“I don’t think there’s anything wrong with the airplane. If you talk to the pilots who fly them, they’ll tell you it’s not the airplane so much as whether or not the manual properly describes what’s going on.”

This insight suggests that Boeing’s long-term future may remain intact. Research firm Edward Jones projects that Boeing may face short-term pressure due to additional expenses and order delays. However, they “believe the outlook is balanced by the backlog of other places (such as 787), recent defense program wins, and the expansion of the services business.”

Boeing’s 10-Year Dividend History

Historically, Boeing has been generous to its shareholders. The company paid investors $1.68 per share a decade ago. Over the last 10 years, the dividend has climbed to $7.19. That's a massive 328% increase and you can see the annual changes below...

Boeing Annual Dividend per share

The compound annual growth is 15.6% over 10 years… but over the last year, the dividend climbed 20.4%. The increase in dividend growth is a good sign. Boeing might work out as a great income investment. Let's take a look at the yield...

Current Yield vs. 10-Year Average

The Boeing Company’s long history of paying dividends makes it a great dividend stock. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital. While people are worried about the recent tragedies, Boeing should land on its feet.

The dividend yield comes in at 2.21% and that's below the 10-year average of 2.92%. The chart below shows the dividend yield over the last 10 years...

Boeing Dividend Yield

The lower yield shows that investors have bid up the company's market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.

Improved Dividend Safety Check

Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Boeing earns, it pays investors $0.60.

The payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.

Here's Boeing’s payout ratio based on free cash flow over the last 10 years...

Boeing Payout Ratio

The ratio is volatile over the last 10 years, but it seems to have steadied since 2012. The last reported year shows a payout ratio of 30.6%. This gives wiggle room for Boeing’s board of directors to raise the dividend.

Conclusion

Given the severity of the recent tragedies, Boeing should emerge relatively unscathed. The share price has fallen, but not to bargain prices. The surge in stock price in recent years sent the dividend yield down. It is still lower than the average, so it’s not the best time to buy.

Boeing’s cash flow is not going to dramatically decline. They have a low payout ratio which is a good sign. In conclusion, Boeing’s dividend should be safe.

If you want to learn more about dividend returns, check out our dividend reinvestment calculator. 

Good investing,

Robert