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When we recommended The Boeing Co. (NYSE: BA) back on Sept. 28, 2011, the stock was trading at $61.92 and was paying a quarterly dividend of 42 cents a share – for a yield of 2.7%.
Since that time, Boeing shares have risen 19.8%, and the company has boosted its dividend twice – first to 44 cents and then to 48.5 cents.
That last increase – a bump of 10% – was announced Monday.
And it's a bigger deal than you might think – illustrating, yet again, why it pays to make dividend-paying stocks a key element of your portfolio.
Let's take a look and I'll show you what I mean.
Boeing's latest dividend increase takes the yearly payout to $1.94. That represents a 2.6% yield at the stock's current price of $74.65. But if you calculate the payout at our September 2011 recommendation price of $61.92, you're looking at a yield of 3.1%.
In the face of the U.S. Federal Reserve's so-called "zero-interest-rate policy," or ZIRP, that's a pretty nice payout.
And the closer you look, the better the story gets.
Since our recommendation, Boeing has paid one dividend of 42 cents a share, and four at 44 cents per share – for a total outlay of $2.18. Add that to gain of $12.73 that we've seen as the stock climbed from $61.92 to $74.65 and the 19.8% capital gain becomes a total return of 24%.
If that doesn't grab you, just think about what that picture would look like after a decade of regular dividend increases and continued capital gains.
We drew such a picture of another stock – income play Omega Healthcare Inc. (NYSE: OHI) – back on Sept. 25. The graphic below that accompanied the story really spells out how powerful dividends can be.
Incidentally, we still like Boeing and Omega Healthcare, viewing both as profit plays for the long run.
And we expect that Boeing will get a near-term boost from any reasonable resolution of the fiscal-cliff mess. Over the next year or 18 months, we believe it could gain as much 15% to 20% from current levels (or 45% from where we recommended it), excluding dividends.
Going forward, ongoing global expansion underscores the long-term growth potential that Boeing actually has. In the latest edition of its "Current Market Outlook" – a forecasting document the company publishes every year, Boeing predicts there will be worldwide demand for 34,000 new commercial airplanes between now and 2031. That's $4.5 trillion worth of business.
What's great about this profit play is that "the remarkable resilience of air travel [has been] amply documented," Boeing said in this latest forecast. Air cargo, too, will continue to grow at a predictable rate in the decades to come. That gives investors some long-term visibility – a grand luxury we don't often get.
"Commercial aviation has weathered many downturns in the past. Yet recovery has followed quickly as the industry reliably returned to its long-term growth rate of approximately 5% per year," Boeing said. "We expect this trend to continue over the next 20 years, with world passenger traffic growing 5% annually. Air cargo traffic has been moderating after a high period in 2010 … expansion of emerging-market economies will, however, foster a growing need for fast, efficient transport of goods. We estimate that air cargo will grow 5.2% annually through 2031."
Incidentally, in addition to the dividend increase Boeing on Monday also announced the resumption of a stock-buyback program. As Private Briefing readers know, we much prefer dividend increases to buybacks, which are often just a way for the company to (usually only partially) offset its rich stock-option grants to executives.
Boeing says it will buy back between $1.5 billion and $2 billion worth of its own stock in 2013 – in essence, part of the $3.6 billion that remains from a repurchase program that was authorized back in 2007. Boeing plans to start repurchasing shares after the release of its fourth-quarter results in late January.
"Strong cash generation, consistently solid core operating performance and a positive growth outlook enable us to take these steps to deliver value for our shareholders," Boeing CEO Jim McNerney said in a statement.
The higher dividend of 48.5 cents a share is payable March 8 to shareholders of record as of Feb. 15.
[Editor's Note: We generally recommend investors employ a "trailing stop" of 25% on all holdings.]