Despite the positive run-up Boeing (BA) stock has enjoyed in 2017, its current indicated dividend yield is 2.2%. Boeing’s dividend yield is now lower than the Dow Jones Industrial Average dividend yield of 2.7%.
Peer Lockheed Martin (LMT) has an indicated dividend yield of 2.4%, United Technologies (UTX) has an indicated dividend yield of 2.4%, and General Dynamics (GD) has an indicated dividend yield of 1.6%.
Growth plus dividends
Despite the stock gain, Boeing’s dividend yield has averaged ~3% over the past five years. Its huge dividend growth has been the primary reason for this.
The company had increased its dividend by 30.3% to $1.42 in 1Q17. Boeing has been able to raise dividends at such high rates due to high earnings growth.
Cash dividend coverage ratio
The cash dividend coverage 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.
At the end of 2Q17, BA’s cash dividend ratio stood at 2.1x, which means that Boeing can sustain dividend payouts at the current state. Boeing’s average cash dividend ratio has been ~3.0x in the last 16 quarters, which gives us a better idea of Boeing’s ability to sustain such high dividends.
Boeing investors are at a double advantage—they have witnessed a huge stock appreciation thanks to the earnings growth, and they have also received good dividend returns. Such growth plus dividend stocks are not common.
Boeing forms ~9.5% of the iShares US Aerospace & Defense ETF (ITA). ITA holds 9% in United Technologies (UTX), ~7.9% in Lockheed Martin (LMT), 6.5% in General Dynamics (GD), and 6.5% in Raytheon (RTN).