Share buybacks are yet another strategy of Boeing’s (BA) to create wealth for its shareholders. In comparison to dividend payments, share repurchases are considered a more tax-efficient method to enhance shareholder wealth. Moreover, as share buyouts lead to a decline in the number of outstanding common stock of a company, they boost the earnings per share.
Boeing first initiated its share repurchase program in 2013. Since then, it has repurchased ~$43 billion worth of its common stock. On December 17, the aircraft manufacturer raised its share buyback authorization limit by $2 billion to $20 billion. In 2018, Boeing repurchased $9 billion worth of its common stock. In the first quarter of 2019, it bought back shares valued at $2.3 billion.
Peers’ share buyback programs
Over the last few years, aerospace and defense organizations have been aggressively returning cash to shareholders, as they’re funding commitments toward pension regulations have reduced significantly. In September last year, Lockheed Martin (LMT) increased its share repurchase authorization limit by $1 billion to $3.7 billion. In 2018, the company bought back $1.5 billion worth of its shares.
In December 2018, General Dynamics’ (GD) management authorized the company to buy back an additional 10 million shares. Last year, the company bought back $1.8 billion worth of its common stock. In the first quarter of 2019, it repurchased $133 million shares.
Last year in December, Northrop Grumman (NOC) increased its share repurchase authorization limit by $3 billion to $4.1 billion. In 2018, the company repurchased $1.3 billion of its common stock. In the first three months of 2019, it repurchased shares worth $60 million.
The Industrial Select Sector SPDR Fund (XLI) has allocated 26.1% of its fund in the S&P 500 listed Aerospace & Defense stocks. The ETF has gained 18.5% in the year so far and outperformed the S&P 500’s return of 16.4%.