Shares of aerospace giant Boeing (BA) have declined 13% in the past month, due to the crash of two B-737 MAX 8 airplanes in recent weeks, which has dragged down the share price. Headline risk often will erode investor sentiment in the short-term.
But as long as the company’s competitive advantages and core business model remain intact over the long-term, the dip in the share price could simply be a buying opportunity.
We continue to view Boeing as one of the top industrial stocks around.
Growth Takes Flight
Boeing is the largest aerospace company in the United States. The company generates annual revenue above $101 billion, and the stock has a market capitalization of $207 billion. Boeing’s core business is commercial airplanes, a category which is essentially a duopoly, as Boeing and Airbus dominate the market.
Boeing’s tremendous competitive advantages provide the company with significant growth potential. It secures its top industry position through significant internal investment. Boeing utilized $3.27 billion of research and development spending in 2018 alone. This investment has paid off, as Boeing ended the year with a backlog of more than $490 billion, up from $474 billion at the end of 2017. Boeing’s huge order backlog includes nearly 5,900 commercial aircraft.
Last year was a record performance for Boeing on many fronts. Full-year revenue increased 8% to a single-year record. Revenue increased 5% in the core commercial airplanes business, while revenue increased 13% in the defense, space, and security operating segment. Global services revenue increased 17% for the year. Adjusted earnings per share increased 30% and also hit a record. Meanwhile, Boeing’s free cash flow increased 17% to $13.6 billion.
Boeing: Attractive Dividend Growth Stock
Boeing’s impressive growth and huge free cash flow allows it to return a great deal of cash to shareholders. It does this through share repurchases and dividends. Last year, Boeing repurchased 26.1 million shares for $9.0 billion. There is a lot more cash on the way for shareholders. In December, Boeing simultaneously announced a new $20 billion share buyback program to replace its previous $18 billion buyback. It also raised its dividend by 20%.
Boeing shares could generate impressive returns for shareholders moving forward, due to a combination of earnings growth and its dividend payments. Boeing is expected to grow its EPS by 12% per year over the next five years, as a combination of mostly revenue growth and share repurchases.
In addition, Boeing stock offers a current dividend yield of 2.3%. Assuming a relatively flat price-to-earnings multiple, Boeing stock could generate total returns of 14% per year over the next five years. While the recent news is unfavorable for Boeing in the short-term, analysts do not expect it to negatively impact the long-term direction of the company. With a high expected rate of return in the years ahead, Boeing is an attractive stock for dividend growth investors.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
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