The Shareholder-Friendly Stock That's Doubled... And Counting

You'll find the best investment opportunities among companies in clear need of a tune-up.

Back in 2012, aircraft builder The Boeing Co. (NYSE: BA ) was in seemingly dire straits. Its newest jumbo jet (the Dreamliner) was proving tricky to build and management didn't actually produce a trouble-free plane until the 66th Dreamliner left the factory.

At that point, shares looked ripe for take-off and have more than doubled since I profiled this Dow component.

If you are a subscriber to our premium service Total Yield, then you're likely familiar with Boeing's progress. Nearly a year ago, Nathan Slaughter, who pens the newsletter, noted that Boeing's smoother-running production lines and swelling backlog have enabled the company to return huge sums of money to shareholders. He added Boeing to his Total Yield portfolio last summer and is now reaping the gains.

I've recently taken a fresh look at Boeing and think this company -- and its Total Yield potential -- may be even better than Nathan realizes. Simply put, Boeing's cash flow in 2018, 2019 and beyond, will likely blow past even the most bullish Wall Street forecasts. And credit goes to tough steps management is taking right now.

Re-Examining The Process

Although Boeing delivers billions back to shareholders in the form of major buyback schemes and rising dividends, the company still has ample cash flow left over to make necessary investments in the core business. Management is now boosting spending on advanced equipment that will enable Boeing to virtually eliminate any assembly line hiccups that tend to delay plane deliveries and negatively impact gross margins.

One example: Boeing's engineers found that certain repeated production delays were attributable to human error. In such areas, robotic equipment has begun to step in, delivering more precise welds, correctly-aligned wiring harnesses and other such process improvements. Many robots will be used simply to bring parts and subcomponents to the floor engineer, saving time that used to be spent in search of such gear.

Investments in automation are expected to help Boeing eventually generate $600,000 in revenue per employee by 2018, up from $540,000 today. Looked at another way, overhead allocated to salaries and wages are on pace to drop from 21% of sales today to 18% by 2018.

Another example: Boeing is developing a plane called the 777X that takes the core layout of the existing 777 and incorporates many advanced technologies found on the 787 (Dreamliner) plane. Management knows that the 787 launch was troubled, and investments in the 777X's development are geared toward making sure that the very first plane leaving the factory has no kinks to be worked out. Boeing will keep selling the legacy 777 until the 777X ships in 2020.

Boeing's management is also boosting spending on all of its other planes, identifying investments that can lower production costs and improve aircraft performance. One of the goals is to have each factory produce a higher number of planes with each passing year. The company made a record 723 planes in 2014, and that figure is likely to exceed 800 by 2017 and 900 by 2018, according to management.

Boeing has a very large backlog (in excess of $500 billion), and management wants to make sure that customers don't have to wait too long to get their orders filled. One of the ways to speed delivery times is to reduce the time needed from final assembly through flight certification. Management thinks it can cut that time in half over the next few years.

Between 2015 and 2018, Boeing intends to boost spending by a combined $10 billion, and it appears to be money well spent.

"These initiatives and others are creating standards for best practices that are being deployed across the enterprise to enable the company to meaningfully lower its costs and deliver a compelling economic return," note analysts at Jefferies.

They figure that for every $1 Boeing is spending now, it will boost annual longer-term cash flow potential by $2. Said another way, $10 billion in spending now will create $20 billion in excess cash flow down the road.

So what does all of this mean for the bottom line? Boeing's operating profits should steadily grow from around $9.6 billion last year, to around $11.2 billion by 2018. A shrinking share count should help earnings per share to surge from $8.60 in 2014 to $10.50 by 2018.

Still, Boeing's intensive investments in capital spending in the near-term means that share buybacks and dividend growth will merely stay on the pace they have been for the past few years. Yet later in this decade, when the capital spending plans have been completed, free cash flow should soar. It's hard to pinpoint a precise free cash flow target, but if you buy shares today, then you'll likely be locking in a long-term double-digit Total Yield.

As investors come to appreciate the steps that management is taking to improve Boeing's core profitability, look for this stock to approach the $200 mark over the next few years.

Risks To Consider: Although a mild economic recession would eat into Boeing's backlog, annual operating results would likely be unaffected. A sharper recession would lead to a hefty amount of order cancellations that would force management to reduce production.

Action To Take --> With more than $500 billion in backlog, a figure which has been growing steadily in recent years, Boeing is poised to deliver an impressive Total Yield for the foreseeable future. This is a buy-and-hold stock that should continue to make new highs with each passing year.

StreetAuthority's premium newsletter,Total Yield, uses two criteria to find the world's safest companies . Not only has the strategy returned an average of 15% per year since 1982, but it's outperformed the S&P during the "dot-com" bubble and the 2008 financial collapse too. To learn more about his "Total Yield" investing strategy, click here .

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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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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