Recently, some warning signs have popped up in the market.
One red flag is the level of total margin debt as a percentage of GDP, which has reached its highest point since 1929. In fact, the current level is higher than in both 2000 and 2007 – which means 2015 could potentially see a dramatic downturn in stocks.
Investors, therefore, would be thrilled to find a rock-solid opportunity in this environment – and if it happened to be rapidly growing its dividend, well, that would be even better.
With that in mind, I’ve identified a company that income investors can hang their hats on in 2015…
Clear Skies for This Planemaker
The firm in question is none other thanBoeing (BA), the world’s largest aerospace company and the leading manufacturer of commercial jetliners and military aircraft combined. Now, this blue chip isn’t exactly a hidden gem, but it is positioned to have a very strong year.
For starters, the 787 Dreamliner, which Boeing has been selling at a loss until now, should become cash-positive in 2015. And don’t worry about sales dropping off anytime soon – Boeing has a backlog of 850 orders for the Dreamliner, which, at a rate of 12 per month, means the 787 is sold out until at least 2020.
In fact, Boeing’s sales growth is doubling the industry average, and it has an incredible $490-billion order backlog – the equivalent of five years’ worth of revenue at 2014 levels.
Furthermore, Boeing just received funding to the tune of $4.2 billion from the Government Accountability Office, which the company will use to develop a new space capsule that can carry astronauts to the International Space Station.
Boeing Dividend Growth
For income investors, the best news is Boeing’s dividend, which has increased by 88% over the past two years and by 192% over the past decade. In fact, the 25% dividend hike Boeing announced in December 2014 was the best in the aerospace and defense industry, other than Huntington Ingalls (HII).
That gives BA a dividend yield just shy of 3%, which is higher than the industry average and higher than the S&P 500, as well. Plus, in 2014, the company bought back 5% of its shares, boosting total yield to about 8%.
Boeing also implemented a $12-billion share repurchasing program in December that will be spread out over the next two to three years… meaning total yield should stay relatively high for the foreseeable future.
If there’s one concern, it would be Boeing’s free cash flow multiple. However, the company has produced more than $3 billion in free cash over the past four quarters and is projecting more than $7 billion in operating cash flow for 2015. If we assume a slightly higher capital expenditure than 2014 ($2 billion), that means Boeing should have nearly $5 billion in free cash flow this year – which will help fund its share buybacks and allow for another dividend hike.
Finally, BA’s stock finished down 2.6% in 2014, while the Dow gained 8.4%. But that was mostly before the firm implemented its latest share repurchasing program and raised its dividend – which, in tandem, signal that Boeing has utmost confidence in the underlying business going forward.
Thus, it appears shares are simply cheap right now, as evidenced by Boeing’s EV/EBITDA of 10.5x – which is lower than the median EV/EBITDA of industrial stocks within the S&P 500 (11.1x).
Bottom line: Based on its massive order backlog, rapid dividend growth, and relatively cheap valuation, Boeing appears to be a rock-solid choice for the coming year.
Good investing,
Chris Worthington
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