Over the past few years, Boeing (BA -0.76%) has moved past the cost overruns and reliability issues that plagued its revolutionary 787 Dreamliner planes early on. This has allowed the company to start churning out cash at an incredible rate.
As its cash flow has surged, Boeing has been extremely generous toward its shareholders. In recent years, the company has returned pretty much all of its cash flow to investors through dividends and share repurchases. With the global aviation market still growing quickly and cash flow still rising, Boeing is planning another big dividend increase for 2019.
Boeing is delivering on its cash flow promises
For the past few years, Boeing's management has repeatedly told investors that cash flow would grow every year through the end of the decade. The company has followed through in a big way.
In 2017, Boeing's operating cash flow rose 27% to $13.3 billion, and free cash flow surged 47% to $11.6 billion. The company's initial guidance for 2018 called for another year of double-digit growth in both operating cash flow and free cash flow, which were projected to reach roughly $15 billion and $12.8 billion, respectively.
Over the course of 2018, Boeing's outlook has continued to improve, even though the company faced some production snafus during the year. Based on its most recent guidance, Boeing is on track to deliver operating cash flow between $15 billion and $15.5 billion, with free cash flow approximately $2 billion behind that level.
Boeing's free cash flow is still rising at a rapid clip. Image source: Boeing.
In short, Boeing has been churning out enough cash to cover both the $1.71-per-share quarterly dividend it paid during 2018 (at a total annual cost of just under $4 billion) and $9 billion of share repurchases.
The capital return program grows again
Boeing will need to set aside a significant chunk of cash in 2019 to pay for its $4.2 billion acquisition of an 80% stake in Embraer's commercial aviation business. However, that didn't prevent the company's board from authorizing another big increase in Boeing's dividend -- and, to a lesser extent, its share-buyback program.
For 2019, Boeing will increase its dividend by about 20% for the second consecutive year. Its quarterly payout will rise to $2.055 per share. That puts the annual cost of its dividend at around $4.5 billion, although the exact amount will depend on the company's share-repurchase activity.
The board also replaced the $18 billion share-repurchase program authorized last year -- which had $9 billion remaining -- with a new $20 billion authorization. Boeing expects to complete the new authorization in approximately two years.
Can Boeing afford it?
Between Boeing's increased dividend and $10 billion of share repurchases -- assuming that the $20 billion authorization is split evenly over 2019 and 2020 -- the company would return about $14.5 billion to shareholders next year. Including the Embraer deal, and assuming no further acquisitions, Boeing would be using close to $19 billion of cash.
There's little chance that the company will generate quite that much cash next year. That said, Boeing plans to increase output of both its workhorse 737 jet and the 787 Dreamliner in 2019. That should drive another year of strong cash flow growth, which could potentially boost free cash flow to $15 billion or more.
Boeing can issue debt to make up the difference without being irresponsible. After all, the company ended last quarter with just $11.9 billion of debt, offset by $10 billion of cash and investments. (The balance sheet looks a little worse after taking Boeing's underfunded pension plan into account, but still rock-solid in light of the aerospace giant's strong free cash flow.)
Of course, Boeing is likely to see further free cash flow growth in 2020, as the company gets the benefit of a full year of the upcoming 737 and 787 production-rate increases. That will allow Boeing to increase its dividend and share-buyback program yet again -- without living beyond its means.
