The only thing that gives me pleasure is to see my dividend coming in. -- John D. Rockefeller
Dividends are a great weapon for investors to magnify the gains from their portfolios. Some companies will actually pay you a small percentage of cash to hold their shares, pretty sweet deal, right? As that cash continues to come in each quarter, investors can reinvest that income to buy more shares, which will in turn pay you more money -- isn't the power of compounding beautiful?
What's even better is when you find a company willing to pay a solid dividend yield, while still having market-beating potential as a stock. Here are two companies, Boeing (NYSE:BA) and General Motors (NYSE:GM), that seem to fit the bill perfectly.
If we first look at Boeing's dividend in recent history, it's easy to see why investors looking for strong companies paying dividends are increasingly seeing Boeing as a leading option.
In late December, Boeing's CEO Jim McNerney announced that the company's authorization for its share repurchase program was increased to a whopping $12 billion. At the same time, McNerney upped the company's dividend, which equaled an 88% increase over the past two years, and an increase of more than 190% over the past decade -- impressive stuff, no?
Boeing has proven that management will continue to return massive amounts of capital to shareholders, but what makes this a strong investment is that the company's business looks strong enough for the stock price to beat the market going forward.
In the near term, Boeing's continuing to accelerate production rates will keep its revenue and cash flow growth strong. Production of its 737 commercial airplane hit 42 per month last April, up from its previous level of 38, and they will be accelerated to 44 per month in 2016 and as many as 52 per month in 2018. Production of its 787 has achieved production of 10 units per month and will increase to 12 by 2016. As this program becomes cash flow positive, it will have a huge positive impact on Boeing's financials.
In the long term, as Boeing continues to cut costs and increase production, the demand for commercial airplanes is expected to surge globally. Consider that Boeing operates in a near duopoly with rival Airbus in a market that Boeing estimates will need 36,770 commercial aircraft (15,500 will be replacements of older fleets), a number valued at more than $5 trillion worth of business.
Last but not least, investors can rest at night because Boeing's backlog of orders is worth $502 billion, which is five times estimated sales this year.
Boeing has plenty of work to do, and with a bright future, investors can expect this dividend-paying juggernaut to continue rewarding shareholders.
General Motors had a rough 2014, no question about it. Its nearly 27 million recalled vehicles in the U.S. alone led the overall industry to set a new annual record for vehicles recalled by a long shot. However, despite its tragic recall debacle, the company is stronger than it has been in over a decade.
GM pays out a 3.2% dividend yield and, with management largely learning its lesson from the recent recession, has trimmed its costs and improved its production efficiencies. Consider that over the next 10 years, GM will go from 26 global vehicle production platforms to only four, which could save America's largest automaker billions of dollars.
Also, in the near term, GM will benefit from lower gas prices and surging SUV and truck sales, which are typically much more profitable than passenger cars. Just last month, GM's pickup sales increased 37%, compared to last year's February, and its large SUV sales increased a staggering 66%. That 37% increase in pickup sales wasn't a one-hit wonder, either, as it followed January's 42% increase and December's 43%.
Furthermore, GM isn't solely relying on its large SUVs and trucks; its vehicle lineup is arguably the best it's ever been. For example, GM's Chevy Impala was the first American sedan in two decades to take home top honors in Consumer Reports' large-sedan category.
Looking at the long term, GM is also placing significant bets in the world's largest automotive market: China. Between 2014 and 2018, GM will pour a whopping $14 billion in investments that include, but aren't limited to, five vehicle plants and two powertrain facilities that will increase GM's production capacity from 3.5 million vehicles in 2014 to 5.4 million by 2018. During that same time frame, GM expects to launch 60 new or refreshed vehicles, including nine SUVs.
That's an important increase in production as new vehicle sales in China are expected to increase from an estimated 24.3 million in 2014 to more than 30 million by 2020. GM anticipates it will improve its market share from 14.6% -- GM remains one of two dominant foreign automakers in China, with Volkswagen -- to 16% by 2018.
GM doesn't have the dividend history Boeing can boast of, but its future seems equally bright, and investors should anticipate more value being returned to shareholders in the long run.