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Could Boeing’s Dividend Payout Rise in 2017?

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Dividends

Boeing (BA) has been paying dividends consistently for the past 20 years. In 3Q17, the company paid a total of $900 million in dividends, which was ~30% of its free cash flow generated in the quarter.

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Falling yield

At its current market price of $268, Boeing has an indicated dividend yield of 2.1%. The yield has been following a downward trend due to strong stock appreciation. The stock had a dividend yield of 3.7% at the start of 2016, which fell to 3.3% at the end of 2016. Boeing’s dividend yield has also fallen below the Dow Jones Industrial Average’s dividend yield of 2.5%.

Boeing’s dividend yield is higher than peers’ yields. Lockheed Martin’s (LMT) dividend yield is 2.3%, United Technologies’ (UTX) is 2.3%, and General Dynamics’ (GD) is 1.6%.

Cash dividend coverage ratio

Cash dividend coverage ratios measure companies’ ability to pay dividends. Boeing’s cash dividend ratio stands at 2.1x, lower than its average ratio of 2.7x in the last 20 quarters. This long-term average gives a better idea of the company’s ability to sustain dividend payouts.

Outlook

Boeing has a history of increasing its dividend payout once every four quarters. It last raised its dividend payout in 1Q17, by ~30%, amounting to a dividend of $1.42 per share. Boeing forms ~9.5% of the iShares US Aerospace & Defense ETF (ITA), which has a 9% exposure to United Technologies (UTX), a ~7.9% exposure to Lockheed Martin (LMT), a 6.5% exposure to General Dynamics (GD), and a 6.5% exposure to Raytheon (RTN).

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