Why Boeing's Dividend Should Soar Higher Soon

Boeing (BA 1.51%) has enjoyed a huge run of success, with its stock soaring to new all-time highs as demand for commercial aircraft has led to unprecedented numbers of orders for the industry. Yet unlike fellow defense-industry players Lockheed Martin (LMT 1.23%) and Raytheon (RTN), Boeing's dividend yield lags behind the market average. With solid growth in its earnings projected for the foreseeable future, when will Boeing share its wealth with shareholders?

Boeing has a history of being conservative with its dividend, keeping it flat during long stretches during the 1990s and early 2000s. The aerospace giant started lifting its payout regularly over the past decade, but the financial crisis led it to hold its dividends steady until the worst of the recession had ended. Now, Boeing appears ready to start a new streak of dividend growth. Let's take a closer look at Boeing to see whether it's likely to keep its young streak going and raise its payout again in early 2014.

Dividend Stats on Boeing

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

How high can Boeing dividends fly?
Boeing shareholders can't seriously complain about a subpar dividend yield, largely because that yield's decline has come from a huge run-up in its share price. Over the past year, Boeing's stock is up almost 90%, and that increase in share price by itself has played a major role in reducing Boeing's dividend yield from the roughly 2.5% level it enjoyed this time last year. Defense peers Raytheon and Lockheed Martin have also enjoyed substantial share price gains, but their returns in the 50% range reflect the fact that they've benefited far less from the civilian side of the business than Boeing has.

Much of Boeing's success has come from the newly found financial health of airlines around the world. Domestically, big players in the airline industry have ridden ancillary fees on baggage and other items to big gains in profits, and they've been anxious to put their cash to work by modernizing their aging fleets and replacing costly older aircraft with newer, more fuel-efficient models that can reduce their overall costs. Boeing has done its best to jump on the gold rush in capital expenditures, although rival Airbus has also captured its fair share of orders from the world's airlines.

Boeing continues to make headlines for the wrong reasons, though. Its 787 Dreamliner has kept having numerous technical problems, although recent setbacks have paled in comparison to the battery problems that grounded the aircraft entirely for several months earlier this year. Airlines have been willing to give Boeing the benefit of the doubt, but as problems persist, more prospective buyers could follow the lead of Japan Airlines and give large orders to Airbus in order to express their dissatisfaction.

Still, Boeing hasn't put all its bets on the commercial aerospace industry. The company teamed up with Lockheed Martin on a bid for the next-generation stealth bomber that could bring in $55 billion. Continued budget pressure could make such opportunities few and far between, raising the stakes for Boeing to make sure it capitalizes on them when they arise.

Boeing Dividend data by YCharts.

Boeing's 10% dividend increase last year marked an acceleration in the company's dividend growth from its early 2012 increase, and with earnings estimates continuing to rise sharply, Boeing has more room to make further increases without causing cash-flow problems. With the aerospace giant paying just a third of its earnings to shareholders as dividends -- a lower level than either Lockheed Martin or Raytheon -- even a sizable increase wouldn't raise its payout ratio to unacceptable levels.

When will Boeing boost its payout?
Just yesterday, Boeing declared its regular fourth-quarter dividend, keeping it at $0.485 per share. That payout will mark its fourth-straight quarter at that level, raising the possibility that Boeing could send its dividend higher early next year.

Another 10% increase to roughly $0.535 per share would still leave Boeing with a payout ratio less than 40%. It would also leave its yield at relatively low levels, but Boeing would need a much higher increase to $0.65 per share just to reach the 2% yield mark at current share prices.

Given Boeing's conservative nature, investors should expect only a more modest increase in its dividend. In the long run, though, continued profit growth could help Boeing start a long streak of dividend growth for long-term investors.

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