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
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%, a bit better than the S&P's 1.8%.
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 37%.
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 -- any ratio less than 5 is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.
Boeing's debt-to-equity ratio is a rather high 292%. Its interest coverage is nine times.
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.
Let's examine how Boeing stacks up next to its peers:
|
Company |
5-Year Earnings-per-share growth |
5-Year Dividend Growth |
|---|---|---|
|
Boeing |
6% |
9% |
|
United Technologies |
9% |
(2%) |
|
Honeywell |
8% |
8% |
|
Lockheed Martin |
10% |
20% |
Source: Capital IQ, a division of Standard & Poor's.
The Foolish bottom line
Boeing exhibits a fairly clean dividend bill of health. It has a moderate yield and a modest payout ratio. Dividend investors may want to keep an eye on the company's debt burden, which appears manageable for the time being, as well as growth. Boeing's earnings growth appears somewhat modest, though the company seems to have some room to raise its payout ratio to generate dividend growth if it's having trouble finding opportunities to reinvest.
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