Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.
Let's examine how Boeing (NYSE: BA ) stacks up. In this series, we consider four critical factors investors should examine in every dividend stock. We'll then tie it all together to look at whether Boeing is a dividend dynamo or a disaster in the making.
1. Yield
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.
Boeing yields 2.4,% slightly higher than the S&P's 2%.
2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford, even when its dividend yield doesn't seem particularly high.
Boeing's payout ratio is a modest 33%.
3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- a ratio less than 5 can be a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.
Let's see how Boeing stacks up next to its peers.
|
Company
|
Debt-to-Equity Ratio
|
Interest Coverage
|
| Boeing |
204% |
10 times |
| United Technologies (NYSE: UTX ) |
48% |
13 times |
| Honeywell (NYSE: HON ) |
69% |
10 times |
| Lockheed Martin (NYSE: LMT ) |
239% |
11 times |
Source: S&P Capital IQ.
4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.
Here's how Boeing has performed over the past few years.
|
Company
|
5-Year Earnings-Per-Share Growth
|
5-Year Dividend per Share Growth
|
| Boeing |
19% |
7% |
| United Technologies |
8% |
13% |
| Honeywell |
6% |
8% |
| Lockheed Martin |
8% |
20% |
Source: S&P Capital IQ.
Though proposed reductions in the growth of defense spending may be a concern, it's not as worrisome for Boeing as for a more pure defense contractor.
The Foolish bottom line
Boeing has a clean dividend bill of health. It has a decent yield, a modest payout ratio, and growth to boot. Though a bit large, its debt burden still appears quite manageable. To stay up to speed on Boeing's dividend progress, add it to your stock watchlist. If you don't have one yet, you can create a free, personalized watchlist of your favorite stocks.
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