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Boeing Announces 30% Dividend Hike: Time to Buy the Stock?

The Boeing Co.BA has boosted its quarterly dividend by 30% and authorized a new stock repurchase plan of $14 billion, which replaces the existing share buyback program, thereby allowing investors a share of benefits of soaring airliner deliveries.

Dividend Hike

Boeing will now pay a quarterly dividend of $1.42 per share, up from $1.09 paid earlier, bringing the annual dividend yield to 3.6% from the prior level of 2.8%. This means that each Boeing shareholder will now gain an extra 13.6-18.3% on each common share of the company. The company will pay the revised dividend on Mar 3 to stockholders on record as of Feb 10.

Impressing investors with stable returns during the economic downturn, this aerospace behemoth began offering dividend hikes from 2011. Even though the last couple of years saw a nominal increase of 15-20% in Boeing's dividend, the company had gifted investors with a massive 50% hike in 2013. It is thus clear that the aerospace major is not exactly new to unusually high dividend hikes. Going forward, an accelerated rate of delivery will enable Boeing to deploy the cash proceeds to continue raising its quarterly payout.

Share Repurchase Program

Boeing has also declared the completion of its share buyback program for 2016. The company spent $7 billion out of the original $14 billion authorization announced last December. Notably, the new approval takes the total authorization to $14 billion once again.

The company is expected to resume repurchasing shares in Jan 2017. However, Boeing's management is yet to decide the timing and volume of repurchases. Under the new share repurchase authorization, buybacks will be take place over the next 24-30 months.

Dividend Hike in Line with Expectations

On Dec 8, analysts at financial services firm Morgan Stanley MS had disclosed expectations of a 30% dividend hike by the aerospace giant. Although Morgan Stanley's projection was far above the estimates given by analysts at other firms back then, now it appears to be absolutely correct. (Read more: Will Boeing Hike Dividend by 30% as per Morgan Stanley? )

Morgan Stanley's expectations were mainly based on Boeing's strong cash flow story as well as the confidence with which management addressed investor concerns about growth, sustainability and accounting strategy.

Our View

As the world's largest aircraft manufacturer, Boeing holds a respectable position in the U.S. as well as the global aerospace and defense market. Not only did the company beat third-quarter earnings and revenue expectations comfortably, but it also raised the guidance for 2016, underscoring its strong cash flow position.

The raised dividend and the new buyback authorization indicate Boeing's optimism on its large and diverse order backlog, which is expected to continue enjoying a conducive environment ahead. Amid budget volatility, uncertainties related to high-cost programs, risks associated with key project executions and order cancellations, such moves are sure to win investor confidence.

The U.S. aerospace behemoth reported total deliveries of 708 units during the first nine months of 2016, surpassing its archrival, Airbus Group SE's EADSY figures.

Moreover, Boeing currently has a backlog of over 5,600 commercial jets as airlines plan to replace their entire fleets in upcoming years. This has urged Boeing to increase its rate of production to meet demand, and provided the company a steady source of income.

Though Boeing's stock has improved about 9.9% in the last one year, underperforming the Zacks categorized Aerospace/Defense industry's gain of 13.2%, the company is expected to witness a rebound in the coming quarters based on its VGM score of 'A', a 12.9% increase in 2016 earnings estimate over the last 90 days and 13% five-year earnings growth expectation compared to the industry's 10.7% growth estimate.

Dividend Hike by a Peer

In Nov 2016, Huntington Ingalls Industries, Inc.'s HII management raised the quarterly dividend to 60 cents per share, up 20% from the previous payout of 50 cents.

Zacks Rank

Boeing currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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