What happened

Shares of aerospace giant Boeing (BA -0.24%) jumped as much as 5% in Tuesday trading before retracing to end the day still up a healthy 3.8%.

Investors appeared pleased with the announcement by Boeing this morning that its board has elected to raise the company's quarterly dividend payout 20% to $2.055 per share and increased its share buyback program to $20 billion.

Boeing 777 airliner in flight.

Boeing's stock is flying on news of new buybacks and a big dividend hike. Image source: Getty Images.

So what

Boeing's new dividend works out to $8.22 on an annual basis, which works out to a 2.5% yield at the stock's closing share price of $328.23 Tuesday -- more than 25% better than the average 1.96% dividend yield across all stocks listed among the S&P 500.

The $20 billion share buyback authorization represents a more than 11% increase over the $18 billion authorized last December. However, Boeing noted that it had already burned through "$9 billion worth" of the previous buyback authorization, so in fact, today's announcement represents more than double the amount of share value Boeing was currently authorized to pursue -- a big vote of confidence by Boeing's management in the belief that its stock is undervalued.

Now what

Boeing expects to buy back up to $20 billion worth of its shares over the next 24 months, beginning in early 2019. At current valuations, Boeing will be paying roughly 19.3 times trailing earnings to buy back its shares -- but only 13.2 times free cash flow.

Sounds like a bargain to me.