Analysts React to Boeing Dividend, Buyback Hikes

In just the first two days of this week, Boeing Co. (NYSE: BA) has announced the purchase of 10 new 737s by a Chinese buyer, a 20% boost to its annual dividend and an increase to an aggregate $14 billion in its share buyback program. Over the weekend, a new problem with the 787 Dreamliner was revealed, but that was just a minor blip on the company’s radar.

On Monday, Boeing announced that China Postal Airlines would purchase 10 of the company’s 737-800s as converted freighters. The order for the converted passenger planes is the first for Boeing and feeds the company’s hopes that it can breathe additional life into the current generation of 737s before the new 737 Max versions hit the market in 2017. In its announcement of the order, Boeing noted that the narrow-body freighter market is “growing quickly around the world.” The agreement between Boeing and China Postal Airlines awaits an official launch of the conversion program.

After markets closed Monday, the company announced the 20% increase in its quarterly dividend to $1.09 and the increase in its share buyback program to $14 billion. As we noted on Tuesday, the increase bumps Boeing’s dividend yield to just over 3%.

Regarding buybacks, Boeing said it had purchased $6.75 billion in stock so far this year and that the buybacks are over until 2016. The company had $5.25 billion left in its previous buyback program and the board raised that to a total of $14 billion.
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Leeham News reported some analysts’ comments on the dividend hike and increase to Boeing’s share buyback plan. Goldman Sachs has long held a Sell rating on Boeing’s stock, and the firm’s opinion did not change after the announcement. The Goldman analysts think that the company is buying back more stock “while approaching a peak of new aircraft supply/demand fundamentals” and the company’s payout ratio likely now exceeds 50%, adding to downside risk if operating expenses rise or cash flow slides. Goldman thinks both have a “high risk” of occurring.

Canaccord Genuity, which has a Buy rating on the stock, noted that sentiment on Boeing is “as polarized as we have ever seen.” Some analysts believe the commercial aircraft cycle is about to rollover (e.g., Goldman Sachs) and others (Canaccord among them) believe that demand will lead to increased production rates for narrow-body jets. Canaccord acknowledges that Boeing probably will announce a production rate cut on the current version of the 777 and “potentially” on the 747. But the firm does not expect further deferred charges against the 787.