Buying dividend producing stocks that can fly higher and higher every year is more fun than flying. Especially if they can pay for future plane tickets to somewhere fun. Tropical beach anyone? Rumor has it, I need at least a few more days before my dividends can afford to pay for that. Probably a bunch longer, but compounding dividend yields will fix that. Who Wants to see their Dividends Fly?
Today, Boeing (BA) fell pretty hard. Yesterday, Boeing (BA) closed at $128 and fell to $121 very quickly around the open or about 5.5% down. There 52-week high was $159, falling 24% since then. I smell a sale going on, or is it the jet fumes?
Boeing (BA) makes large commercial airplanes. Their current 787 Dreamliner offers a 20% fuel savings, which is one of the largest cost for airlines. This will give airlines a large fuel savings every year. Now, those saving are a lot less impressive now that oil is so cheap. But airplanes can fly for 20+ years. I do not think oil will be this cheap for the next 20 years. So, these airplanes will hedge the airlines from rising fuel cost in the future. And by reducing the demand for jet fuel from buying fuel-efficient airplanes, it will help keep jet fuel cheaper in general for everyone. Saving money in fuel will leave more money in their budgets to buy more planes. And they only have one main competitor, Airbus (EADSF), which is not an US company. And having only 2 top companies competing will keep competition low and profits high.
The main purchaser of airplanes is airlines. Actually, it turns out, airlines just like parking them at airport for show and tell, “Here’s Your Sign.” (Bill Engvall). With the cheap fuel, bankruptcies, mergers, and improving economy, airlines have a lot of profits and cash. If your main customers have cash, that means they have money to buy from you. Sometimes the easiest logic is the best logic. On top of that, a lot of airlines have old airplanes that they want or will eventually have to replace. Cash and a need to buy your product, awesome.
Now Boeing (BA) is being hit hard because of the strong US $ and some of their airplanes have weaker sales. The 747-8 freighter production is going down from 12 airplanes to 6 a year. This is because the air cargo market is not doing as well, at least for sales for Boeing (BA). They also plan on reducing the production of the 777 jet from 8.3 to 7 per month. But Boeing (BA) makes a bunch of planes. The 737 plane family, the largest group, plans on increasing production in 2016 and 2017 to keep up with there 8 years of backorders. They are also increasing orders for the 787 Dreamliner from 8 a month to 10. Also, 767 tanker and freighter will go from 1.5 to 2.5 a month. Overall, this is an increase in the number of planes. While increasing every type would be nice, there are different markets. It is funny how we say to not put all of your eggs in one basket, and then punish companies for doing that, at least in the short-term. Maybe Wall Street needs a children’s book of virtues.
Our Dividends Flying with this Purchase
Therefore, we have been looking at Boeing (BA) and looking for a good entry point. Even with some small hiccups, they have a long list of backorders to fill and to make lot of money for years and years to come. Coming down from $159 to $121 a share is offering us a very nice entry point. We bought 2 shares for $249.38 including those sky-high commissions. They will pay me $8.72 a year in dividends to start. Getting the cheaper price, instead of a 2.7% yield, I will get a 3.6%. Now let’s watch this dividend plane fly higher.
Who Wants to see their Dividends Fly? Do you think Boeing (BA) fits in a dividend portfolio? Please feel free to join in the comments below.
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Discloser: Long BA