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Analyzing Boeing’s Free Cash Flows and Dividend Prospects in 2018

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Boeing’s cash position

On March 31, Boeing (BA) had cash and cash equivalents of $9.2 billion, up ~$400.0 million from $8.2 billion on December 31, 2017. The company has enough cash for a quarterly cash dividend payment of ~$1.0 billion. The aircraft manufacturer has paid cash dividends on common stock every year since 1942.

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Boeing’s free cash flows

FCF (free cash flow) is calculated by subtracting capital expenditure from operating cash flows. The remaining cash is used for stock buybacks, dividend payments, and reinvestment in the business. The above chart shows that BA’s free cash flows have steadily gone up over the last few years. In fact, since 2016, the FCF has exhibited a steep rise YoY (year-over-year).

Thomson Reuters-surveyed analysts estimate $13.5 billion in free cash flows for Boeing in 2018. Notably, the company has raised its operating cash flow guidance to $15.0 billion to $15.5 billion from up to $15.0 billion earlier for fiscal 2018. This year, BA’s FCFs are expected to grow 14.2% YoY, whereas the company’s FCF rose 47.2% last year.

The company’s operating cash flows have improved a lot over the last six years. From $8.1 billion in 2012, these have gone up 63% to $13.3 billion in 2017. The company anticipates a 16.3% rise in operating cash flows in 2018. Capital expenditure over these years has largely remained range-bound between $1.7 billion to $2.1 billion, which has also resulted in a sizable rise in Boeing’s free cash flows.

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Due to the impact of the Tax Cuts and Jobs Act, Boeing’s effective income tax rate was 12.8% in 1Q18 compared with 26.4% in 1Q17. Since Boeing sells US manufactured goods to non-US customers, its effective tax rate should go down in 2018. Considering the lower capex levels and high levels of free cash flows, the aircraft maker might increase stock buybacks or substantially raise cash dividends in 2018.

ETF investment

A total of 110 ETFs invest in Boeing stock. The company’s stock is the top holding of the iShares U.S. Aerospace & Defense (ITA) with a weight of 11.2%. The other industrial stocks held by ITA in the order of holdings are United Technologies (UTX) at 7.6%, Lockheed Martin (LMT) at 7.2%, and Raytheon (RTN) at 6.4%.

We’ll go through Boeing and its peers’ forward dividend yields in the next part of this series.

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