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Will Boeing Increase Its Dividend Payout in 2Q16?

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Dividends

Boeing (BA) has been a consistent dividend payer for more than two decades. For 1Q16, BA paid a total of $0.7 billion in dividends, which is more than the $0.5 billion free cash flow generated for 1Q16.

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High yield

After its 4Q15 earnings, Boeing’s stock took a 10% hit, which resulted in its dividend yield rising to ~3.7%.

With some recovery in its stock, the indicated dividend yield has currently fallen to 3.2%. This is still higher than the industrial average dividend yield of 2.3%.

BA has a trailing 12-month (or TTM) yield of 2.97%. This is lower than Airbus, which has a TTM yield of ~4.9%. Lockheed Martin (LMT) has a dividend yield of ~2.5%, United Technologies (UTX) of ~2.4%, and General Dynamics (GD) of ~2.0%.

Cash dividend coverage ratio

BA’s cash dividend ratio stands at just 1.7x at the end of 1Q16, indicating its ability to just about sustain its dividend payouts. The ratio is calculated as income before extraordinary items minus minority and preferred dividends over dividends paid. It measures the ability of the company to pay dividends.

A ratio of less than 1 indicates dividend payouts higher than the company’s cash flows, which may be difficult to sustain in the future.

Outlook

Boeing has a history of increasing its dividend payout once in every four quarters. The company has already announced a 20% increase in quarterly dividends for 2016. This amounts to a dividend per share of $1.09. It is expected to stay at these levels for the rest of 2016.

BA forms ~8.9% holding of the iShares US Aerospace & Defense ETF (ITA).

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