When Will Boeing Reinstate Its Dividend?

 

Predicting a financial catastrophe for the company amid the chaos of the COVID-19 crisis, BA executives took the swift decision to suspend its dividend and focus instead on simply surviving what was at the time an uncertain future. The situation was obviously serious and drastic action had to be taken. And while investors would no doubt be left ruing their losses, most could see that the measures were for the good of the whole company and the right thing to do at that point.

 

It wasn’t just the global coronavirus pandemic, either, that contributed to Boeing’s bad fortunes; a large part of the blame could be traced back to 2019, when, after two fatal plane crashes, all its 737 MAX airlines were grounded.

 

The fallout from this action caused revenues to fall and forced the company into expensive spending measure to fix its fleet of faulty planes. The double hit of coronavirus and the tragedy of the crashes are still being felt by Boeing to this day.

 

Is Boeing paying a dividend? Boeing (BA) has a strong history of delivering cash returns to investors by way of both dividend payouts and share repurchase schemes.

 

When did Boeing last pay a dividend? At the time of its last payment in February 2020, Boeing had been growing its dividend pay-out consecutively every year until its final payment, taking its quarterly rate from $0.485 in 2013 to a high of $2.055. Its yield at that point stood at 2.4 percent.

 

It had also been aggressively buying back stock in the years prior, spending upwards of $10 billion on this endeavor throughout 2018 and 2019.

For Boeing to reinstate its dividend in the coming months or years a number of events will have to come to pass, the most important of these being whether the company can become profitable again.

 

How long will it take Boeing to recover? At the moment, there are good signs that Boeing is on the right track in this regard: in its latest quarterly earnings filing, Boeing reported a better than expected core operating profit of $59 million, much improved from last year’s equivalent quarter, which came in at a $754 million loss.

 

Crucially, free cash flow also improved from a loss of $5.08 billion in Q3 2020 to a loss of just $507 million this time around.

 

If Boeing is going to start paying a dividend again, the money to do so will ultimately come from solid cash reserves. And, while cash flows are still not net positive right now, things are going in the right direction.

However, it’s certainly not all good news. Boeing’s long-term debt currently stands at $57 billion—which, for a company that enjoyed close to zero net debt levels as recently as 2019, will be a big concern. Indeed, it’s likely that Boeing will make a priority out of paying down this debt over-and-above getting its dividend scheme up and running again.

 

Moreover, despite a turnaround in cash flows, Boeing still isn’t generating a profit—which, for a company as cautious as Boeing, would make it simply unthinkable for it to begin making dividend payments again.

 

In fact, Boeing missed its non-GAAP earnings estimate by $0.46, with a per-share loss of $0.60. So, a lot of work still to do here, especially since its revenues of $15.28 billion also under-performed Wall Street expectations by $990 million.

 

 

The most optimistic scenario for investors in the short term would be a renewed dividend at a lower rate. But even this is unlikely. With high debt and no positive earnings, it would be more sensible for Boeing to prioritize reducing its debt obligation and buying back more shares before even thinking about its dividend—a course of action that could return the business to full health sooner and make a dividend return more practical for the long-term horizon. 

 

Boeing is said to famously operate a duopoly with its rival aerospace corporation, Airbus, generating a kind of competition that actually spurred both participants to further innovate and hit production targets in excess of what they might have achieved as a stand-alone monopoly.

 

But that status quo could be coming to an end, with Boeing (BA) seemingly lagging behind its industry adversary, as the shock of the last few years takes its toll on the American airplane manufacturer.

 

 

However, if things appear bad in comparison with Airbus alone, the imminent arrival of China into the commercial airplane space is even more worrying. China expects to have its first natively-developed Comac narrowbody C919 in operation within a few years and could seriously shake up a market that Boeing and Airbus have considered their own for quite some time.

 

Dividend concerns aside, Boeing’s financial situation at the moment could be viewed as being in repair mode right now.

 

The firm’s year-on-year revenue growth of three percent is low, even for an Industrials sector that normally sees median levels of growth at around just 10 percent. BA is struggling to turn an earnings surplus too, but even its gross profit margins of 5 percent are still pretty woeful—and a P/E multiple of 1,840 will have even the most optimistic investor looking the other way.

 

Despite this, Boeing continues to run a successful business, reflected in a refreshingly low forward price-to-sales ratio of 2.1 and an enterprise value-to-sales fraction of 2.6.

 

Annual EBITDA growth of 217 percent also demonstrates that the company is definitely on course for profitability, even if this is still some way off.

 

Will Boeing stock ever recover? Income investors might see Boeing’s valuation as secondary to what rewards the stock can bring by way of a reinstated dividend. Judging when this will be is difficult, but will primarily depend on when positive earnings and cash flows start being generated.