To distribute more cash to shareholders, Boeing (NYSE: BA) recently announced an increase of 10% to its quarterly dividend, to 48.5 cents per share, paid on March 8 2013 to shareholders of record on February 15. In addition to the dividend increase, Boeing also expected to repurchase $1.5 to $2 billion in 2013. Should investors buy into Boeing to take advantage of both the dividend increase and share buyback next year?
One of Largest Players in Commercial Airlines and Defense Business
Boeing is one of the biggest global aerospace companies with three main major reporting segments including Commercial Airlines; Defense, Space, & Security; and Boeing Capital. Among the three, Commercial Airlines contributes the most revenue to the company, more than $36 billion out of $68.73 billion in total revenue. The company is the major maker of 100+ seat airplanes for commercial airlines globally, just behind Airbus, which belongs toEADS (NASDAQOTH: EADSY). Following the presentation of John Leahy, COO of Airbus, in 2011, the net revenue market share of Boeing was 46%, or nearly $118 billion, whereas Airbus held 54% share of global revenue, or $140.5 billion.
The second biggest source of revenue was from the Defense, Space, and Security business, generating nearly $32 billion in revenue in 2011. In this segment, the majority of sales come from Military Aircraft subsegment, nearly $15 billion. The other two subsegments are Network & Space System and Global Services, each generated around $8.67 and $8.36 billion in 2011 revenue, respectively.
Growth in Topline, Bottom Line, and Dividend but Sluggish in Share Price
In the last 5 years, Boeing has managed to grow revenue and earnings per share at the positive, but fluctuating rate.
BA Total Return Price data by YCharts
The revenue has grown by nearly 19%, and EPS grew 7.77% during the last 5 years. For the trailing twelve months, Boeing booked nearly $79 billion in revenue and $5.67 earnings per share. Even with the growth in its revenue and EPS, Boeing’s shareholders have received a total negative return (including dividends) of more than -2% when investing in the company. Interestingly, in the last 10 years, Boeing has had a history of consistent increases in dividend payments to shareholders. The dividend has grown from $0.68 per share to $1.68 per share in 2011, marking a 10-year annualized growth of nearly 9.5%. It is good for us to see the payout ratio has been reduced over time, from a whopping 111.5% in 2002 to only 30.7% currently.
Boeing Doesn’t Seem to be the Best Pick
Currently, Boeing is trading at $74.65 per share, with the total market capitalization of $56.29 billion. With the quarterly dividend of 48.5 cents per share, the dividend yield is nearly 2.6%. Compared to its peers including Northrop Grumman Corporation (NYSE: NOC) andLockheed Martin Corporation (NYSE: LMT), Boeing gives investors the lowest yield, even after the dividend increase. The dividend yield of Northrop Grumman and Lockheed Martin are 3.2% and 4.6% respectively. In terms of valuation, Boeing is valued at 13.15x P/E, whereas Lockheed Martin is valued only at 10.38x P/E and Northrop Grumman is the cheapest, with only 8.65x P/E.
My Foolish Take
Boeing is one of the major global players in the fields it is operating. However, the dividend increase and the share buyback don’t interest me much because of its high relative valuation, but low dividend yield, even after the upcoming increase.