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Boeing Poised for Biggest Dividend Increase Since 2007

Boeing Co. (BA) is poised for its largest dividend increase since the financial crisis, returning cash to investors as it tries to bolster a stock price hurt by delays to its 787 Dreamliner jets.

The quarterly payout may rise 9.1 percent to 48 cents a share next month, according to data compiled by Bloomberg. That compares with a 4.8 percent boost last year and no change in 2010, and would be the most for Chicago-based Boeing since a 14 percent jump in December 2007.

Boeing has $11 billion in cash and the promise of more to come, as it boosts output to get planes from a record $307 billion order backlog to their buyers, who typically pay 40 percent of the price on delivery. Chief Financial Officer Gregory Smith said Nov. 13 that buybacks are “a big priority” and that Boeing is studying its dividend.

“Boeing doesn’t get much benefit of the doubt from investors after all the program delays and issues,” said David Rowlett, a Baltimore-based analyst for T. Rowe Price Group Inc., which owns about 30 million Boeing shares.

The 787, the first jetliner built chiefly of composite materials, was delivered to its initial customer in 2011, more than three years late. It still accounts for 805 of the 4,234 planes in Boeing’s backlog.

“We kind of went through the development cycle, now we’re into production,” Smith said Nov. 13 at a Goldman Sachs Group Inc. industrials conference. “We have successfully executed those rate breaks, making the deliveries, so as we kind of get closer to the end of the year, the plan would be to provide more clarity, specifics on cash deployment.”

Boeing’s Slide

Boeing rose 1.7 percent to $71.96 at the close in New York, amid a broader market rally. The stock still has fallen 1.9 percent this year, compared with gains of 5.9 percent for Airbus SAS parent European Aeronautic, Defence & Space Co. (EAD) and 10 percent for the Standard & Poor’s 500 Index.

The shares have dropped 30 percent since Oct. 9, 2007, the day before the first 787 delay became known. That trails EADS and the S&P 500 over the same period.

“Boeing should be deploying more cash to shareholders, particularly since the share price is depressed,” Douglas S. Harned, an analyst with Sanford C. Bernstein & Co. in New York, said in a Nov. 6 note. “We would like to see plans for cash to shareholders above a minimum level of $2 billion for 2013.”

That would show Boeing’s confidence in meeting targets to raise output and deliveries, Harned said. Order growth, usually a driver of the stock, hasn’t helped Boeing keep pace this year with EADS or the broader market.

Aircraft Output

Boeing is working to boost output 60 percent in the four years through 2014, a move that analysts estimate will help push revenue up 36 percent to $93.7 billion, according to a Bloomberg survey.

The share price has languished compared with previous rebounds, according to Barclays Plc research. The doldrums persist even as Boeing won the most orders in any nine-month period since at least 1958 and built a backlog more than eight times last year’s jet sales.

Through October, Boeing had gained 124 percent from February 2009, which Barclays said was the stock’s last trough on a monthly basis, during the financial crisis that followed the 2008 bankruptcy of Lehman Brothers Holdings Inc.

In comparable 44-month periods after previous troughs, Boeing climbed 253 percent through November 2006, 177 percent through October 1996; 203 percent through July 1991; and 417 percent through February 1986, data compiled by Bloomberg show.

Tracking Troughs

On an absolute price basis, the rebound is the worst “‘off the bottom’ in five cycles, or about 40 years of data,” even with a record backlog, the prospect of high cash flow and lower operational risk, said Carter Copeland, a Barclays analyst in New York. He has an overweight rating on the shares.

“Boeing has become a ho-hum stock in that there’s not a lot of new money interested in it,” said Ken Herbert, an analyst with Imperial Capital in San Francisco. His hold rating on the stock puts him in the minority in a Bloomberg survey that found 28 buy recommendations, three holds and one sell, indicating analysts see potential gains for stockholders.

The planemaker is at the cusp of a transition from investment to cash generation, said David Pearl, who helps manage $24 billion including Boeing stock as co-chief investment officer at Epoch Investment Partners Inc. in New York.

Free cash flow, or cash from operations minus capital spending, was $1.17 billion in the third quarter, compared with $69 million a year earlier. That beat the $1.03 billion average estimate of five analysts in a Bloomberg survey.

Cash Flow

“Their free cash flow will double off these levels, particularly because they don’t have another project that’s going to take a lot of capital,” Pearl said in an interview.

Boeing is working on upgrades to its 737, 777 and 787, which will cost less than developing a brand new jet. The challenge is that such projects may not generate as much investor enthusiasm.

“A lot of interest in the stock was as the Dreamliner was early in its development stage, and that interest has definitely waned,” said Janna Sampson, who helps manage more than $3 billion, including Boeing stock, for OakBrook Investments LLC in Lisle, Illinois.

Boeing stands to benefit from its success smoothing out production bumps with the Dreamliner, and Copeland said naysayers -- including himself -- are reversing their predictions that the planemaker wouldn’t be able to attain its target of building 10 787s a month by the end of 2013.

‘Hesitant’ Investors

The goal is ambitious for a wide-body jet, let alone an all-new model with composite-plastic materials and new manufacturing processes blamed for the delays. Boeing took a step toward that end when it increased the rate to five this month, from 3.5, and it’s discussing going past 10.

At 10 a month, the 787 should generate about $14 billion in annual revenue, T. Rowe Price’s Rowlett said. Over time, margins should move toward those of more mature programs like the wide- body 777, which he called a “huge earnings driver.”

“It’s exciting, but Boeing has to prove they’re going to do it,” he said. “Investors are understandably hesitant to give them credit.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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