The Boeing 787 Dreamliner. Source: Boeing.
With an order backlog of $502 billion, a market opportunity forecast to be worth a combined $5.2 trillion over the next 20 years, and solid underlying financials, it's difficult to beat Boeing (BA -2.87%) as a best-of-breed dividend stock -- it currently yields 2.4%. However, we Fools are always up for a good challenge, so we asked three of our top industrials specialists to make a case for a company that they think has a better dividend than Boeing. Read on to find out why Honeywell (HON -0.70%), General Electric (GE -2.11%), and Ford (F 0.08%) are their top picks.
Asit Sharma: If you're a dividend investor with a holding period greater than one to two years, you may find a better dividend in the aerospace and diversified manufacturing conglomerate Honeywell International. Honeywell, though less than half Boeing's size, is much more profitable: Its 2014 operating income margin was 14.4%, versus Boeing's margin of 8.2%. It's also growing operating cash flow at an impressive rate, due to careful work on improving productivity and profitability over the last several years. Operating cash flow has increased from $3.5 billion in 2012 to $5.0 billion in 2014.
Honeywell is returning some of this cash to shareholders. The company increased its dividend payout by 15% last quarter, bringing its current annual yield to 2%. While this lags Boeing's 2.4% yield, the company's rising cash flow, and management's expressed desire to increase the company's payout ratio (the ratio of dividend payouts to total earnings), is an indication that the yield could surpass Boeing's over the coming years.
Boeing's stock has been in vertical take-off mode since the beginning of this year, returning 19.8%. Honeywell's stock has climbed a very decent 3.9% year to date. While that's nowhere near Boeing's performance, in recent history, Honeywell's combination of steady growth and a decent dividend yield has proven it to be the better stock on a total return basis. An investment in Honeywell over the last five years, with dividends reinvested, would have returned 172%, versus 158% for Boeing. And Honeywell has done so with a business model that's more diversified, and perhaps better insulated against economic shocks, than Boeing's.
Steve Heller: Undoubtedly, when GE slashed its dividend for the first time in 71 years during the height of the Great Recession, it tarnished the industrial giant's "dividend stalwart" reputation, a painful memory that may still be resonating with investors today. However, since the historic cut of 2009, GE has shored up its balance sheet, improved earnings, and increased its dividend seven times -- a clear indication that management wants to restore GE's long-standing dividend status with investors.
GE Dividend data by YCharts.
As the above chart illustrates, GE still has a long way to go before its dividend payment reaches pre-crisis highs, but management has made increasing its dividend in line with its future earnings growth a top priority. According to CEO Jeff Immelt on the company's fourth-quarter earnings call, "our priority is to execute on [the] Alstom [acquisition], fund organic growth, and continue to grow the dividend."
Considering GE has been taking measures to reduce its reliance on its financial services business, GE Capital, to account for only 25% of its total earnings by 2016, the key to future dividend increases lies within management's ability to drive earnings growth from its industrial segment. Fortunately, GE's industrial segment outperformed GE Capital by a wide margin in 2014, reporting annual revenue growth of 7% to $108 billion, which translated to $17.8 billion in operating profit -- a 10% year-over-year increase.
Looking ahead, GE's industrial business remains well positioned to capitalize on major global growth trends, not to mention the added bump from the Alstom acquisition, which the company estimates will increase industrial revenues by $10 billion, raise operating income by $600 million, and create $1 billion in cost savings by 2016.
All told, with its dividend yield north of 3.6% and a P/E that's 19% lower than Boeing's, I think GE shares offer a more attractive value for long-term dividend investors.
Rich Smith: Flying is safer than driving, but Ford is safer than Boeing. At 2.4%, Boeing's dividend beats the average dividend yield on the S&P 500 by better than 20 basis points. But investors can still do better. Ford's stock, for example, pays its shareholders a whopping 3.7%, which is 71% better than the average, and 54% more than what Boeing shells out.
What's more, with Ford shares selling for just 8.8 times forward earnings, the stock itself is cheaper than Boeing's, at 16.7 times forward earnings. Ford's price-to-sales and price-to-book value ratios similarly offer discounts to Boeing stock. So Ford gives you a double whammy of profit goodness -- more money in the mailbox every month, plus a cheaper stock that's less "risky" to own than Boeing's. In this sense at least, "driving" is actually safer than "flying."
Those are the strictly financial arguments in favor of buying Ford stock over Boeing stock. But honestly, I get at least as much satisfaction from this emotional factor: When I buy something from a company I own, I get part of my purchase price back in cold, hard dividend cash. That's like a free discount on my purchase, every quarter, when I buy and drive a Ford F-150. And that's something I just can't get from Boeing stock.
