Boeing 787 Dreamliner Individual Plane Cost Turned Cash Positive In Fourth Quarter: Buy The Dip

| About: The Boeing (BA)

Summary

Boeing Co. Management reduced next year's plane deliveries by 15-20 planes.

Boeing Co. dividend is high at 3.7% and has been increased 8 of the last ten years.

Boeing Co. total return outperformed the DOW average for the 37 month test period by 36.41%.

This article is about Boeing Co. (NYSE:BA) and why it's an income investment with good growth company that's 8.0% of the Good Business Portfolio. The Boeing Company, together with its subsidiaries, is an aerospace company both commercial and military aircraft. The 787 individual plane cost went cash positive in fourth quarter, the Good Business Portfolio guidelines, total return, earnings, company business will be looked at.

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The 787 individual plane cost went cash positive in fourth quarter

At the last earnings conference call January 27, 2016 management said that in the fourth quarter the individual cost for the 787 went cash positive. Boeing took a charge of $201 million for the quarter or an average negative cost of $6 million per plane. In the second quarter of 2015 the negative cost was $26 million and in the third quarter it was negative $16 million. This progress, if continued, will get to the average positive cash per plane of $4-$5 million in the next quarter or +$136 million total for the first quarter. Considering that the 787-9 is becoming a larger share of the planes delivered where the profit margin is higher and the increased plane delivery to 12 planes a month, Boeing's 787 program should have increasing cash flow each quarter. This is a big positive for the innovation of the 787 technology. The biggest thing that Boeing has going for it is its technical superiority over Airbus (OTCPK:EADSY) that was developed on the 787 and will be used on future aircraft. The 787 plane is opening new direct point to point routes each month with the latest being Dubai to Panama city in 17:35 hours.

Two other milestones that just occurred in the last two weeks are the first test flight of the 737 Max and the first refueling test of the KC46A tanker; both were very successful.

This should allow the Boeing Co. stock price to increase well for the growth investor and keep the dividend rate attractive for the shareholders as the growth continues with the 787-9 and 787-10, 737 Max and KC46A tanker. These new products coming on line soon makes Boeing a bargain at today's price.

Good Business Portfolio Guidelines

Boeing Co. passes 10 of 10 Good Business Portfolio guidelines. These guidelines are only used to filter companies to be considered in the portfolio. There are many good business companies that don't break many of these guidelines but will still not be considered for the portfolio at this time. For a complete set of the guidelines, please see my article "The Good Business Portfolio: All 24 Positions." These guidelines provide me with a balanced portfolio of income, defensive and growing companies that keeps me ahead of the Dow average.

Boeing Co. is a large-cap company with a capitalization of $79.1 billion. The company's largest competitor is Airbus in the commercial plane sector but Boeing is delivering more planes per year and a superior company.

Boeing Co. has a dividend yield of 3.7% that has been increased for 8 of the last ten years. Boeing Co. is therefore a good choice for the dividend income investor and its dividend is very safe. The average payout ratio is 35% over the past five years. Mr. Market is not giving Boeing Co. credit for the new planes that will start delivery in the next few years. There good cash flow leaves plenty of cash remaining for investment in new planes and share buybacks after paying its high dividend.

I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% capital gain in addition for a yearly distribution of 5%. Boeing Co. has a three-year CAGR of 12%; well above my overall requirement. Looking back, $10,000 invested five years ago would now be worth $19,538 today (from S&P Capital IQ). This makes Boeing Co. a good investment for the income investor with the addition of good growth in the long term.

Boeing Co. cash flow is great at $7.4 billion, which leaves it with plenty of cash allowing it to pay its high dividend and have cash left over for stock buyouts and company investment.

Boeing Co. S&P Capital IQ has a four-star rating or buy with a price target of $160.0. This makes Boeing Co. very underpriced at present and a good choice for the income investor, in addition to good growth in the worldwide aerospace commercial and military business.

Total Return and Yearly Dividend

The Good Business Portfolio guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio. Boeing Co. had better total return than the Dow baseline in my 37 month test period. I chose the 37 month test period (starting January 1, 2013) because it includes the great year of 2013, the moderate year of 2014, the small loss year of 2015 and the losing year of 2016 YTD. I have had comments about why I do not compare the total return to the S&P 500 average. I use the Dow average because the Good Business Portfolio has six Dow companies in it and is weighted more to the Dow average than the S&P 500. Modeling the Dow average is not an objective of the portfolio but just happened by using the 10 guidelines as a filter for company selection. This good total return of Boeing Co. makes it appropriate for the income investor that also wants good growth to keep well above inflation. DOW's 37 month total return baseline is 25.67%

Company Name

37 Month total return

Difference from DOW baseline

Yearly Dividend percentage

Boeing Co.

62.08%

+36.41%

3.7%

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Last Quarter's Earnings

For the last quarter Boeing Co. reported earnings on January 27, 2016 beat expected at $1.60 compared to last year at $2.31 and expected at $1.28. Revenue was better than expected by $50 million at $23.6 billion. This was a good report showing earnings above expected but the 569 million write off for the 747 program and the forward reduction in deliveries hurt and Mr. Market took Boeing down. Earnings for the next quarter will be released in late April and are expected to be at $1.89 compared to the same time last year at $1.97. Boeing Co. has a headwind due to the strong dollar but has good growth going forward as it starts to deliver more 787-9 planes and continues on the KC46A program. Boeing is known to promise little and overdeliver and I expect Boeing to beat last year's plane deliveries.

Business Overview

The Boeing Company, together with its subsidiaries, is an aerospace company. The company operates through five segments: Commercial Airplanes, Boeing Military Aircraft (BMA), Network & Space Systems (N&SS), Global Services & Support (GS&S) and Boeing Capital (BCC). The Defense, Space & Security (BDS) business includes BMA, N&SS and GS&S. The Commercial Airplanes segment develops, produces and markets commercial jet aircraft and provides related support services. The BMA segment is engaged in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for global strike. The N&SS segment is engaged in the research, development, production and modification of the products and related services. The GS&S segment provides a range of support solutions. The BCC segment's portfolio consists of equipment under operating leases, finance leases, notes and other receivables, assets held for sale or re-lease and investments. Boeing Company business is World Wide and the strong dollar is a head wind to revenues at present. The Boeing Company has a backlog of $490 billion or more than 7 years to build all the planes in the backlog, there business is booming and makes Boeing a good growth investment as the newer planes come off the assembly line.

Takeaways and Recent Portfolio Changes

Boeing Co. is a dividend income and great total return choice long term with better growth as they start to deliver more 787-9 and the KC46A tankers. Considering Boeing Co. stock price and its total return over performing the Dow average, Boeing Company will be held by the portfolio and let it grow until it gets well above my normal trim point of 8% of the portfolio to at least 9% of the portfolio. Boeing Co. has a high dividend of 3.7% providing the dividend income investor with a reasonable entry point to lock in this high yield with good growth in the long term. If you don't already have a position in the aerospace sector, Boeing Co. is a buy for your portfolio but you must be patient as new planes start to be delivered in the next few years.

Bought Freeport-McMoRan Inc. (NYSE:FCX) and increased its percentage in the portfolio to 0.5%. This is now a deep value play for the portfolio. The Good Business Portfolio embraces all styles of investing, so FCX is the first deep value company to be increased in the portfolio. FCX's up potential is great as the copper price should start to stabilize and then start to go up as demand becomes larger than supply in the long term.

The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Home Depot (NYSE:HD) is 8.7% of portfolio, Johnson & Johnson (NYSE:JNJ) is 8.5% of the portfolio, Boeing (NYSE:BA) is 8.0% of the Portfolio and L Brands Inc. (NYSE:LB) is at 8.1% of the portfolio.

Therefore HD, JNJ, BA and LB are now in trim position. After the earnings are out, HD may be trimmed if it's still well above 8% and let the other winners run a bit more.

I have written individual articles on CAB, JNJ, EOS, LB, GE and HD and other companies in the Good Business Portfolio and other companies that the portfolio is evaluating, if you have an interest please look for them in my list of previous articles.

Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.

Disclosure: I am/we are long BA, HD, LB, EOS, GE, CAB, JNJ, FCX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.