Time to Buy Boeing?

Another day, another drubbing for Boeing (BA). BA is now down 47% from its 52 week high due to plane delays, machinist strike, and a weak overall market. All of this is good news for somebody wanting a high yielding stock. BA has been buying back stock at a rampant pace of late. Over the last 12 months, BA has bought back nearly $4B of stock with a current market cap of just over $42B. This gives BA a buyback yield of nearly 9%. Add on the 2.7% dividend and you get a net payout yield of nearly 12%. This yield is incredible considering the market position and financial strength that BA claims.

It's possible the strike goes on longer than expected and causes huge financial disruptions to BA, or maybe the global growth story will continue to erode and plane order will be canceled and pushed out. Regardless, BA has the financial strength to outlast the issues and will continue to buyback stock at these lower levels and issue a nice dividend. The longer the stock remains this low, the more stock they buy back and the higher future earnings will be increased.

When extreme fear exists and long term prospects remain intact, that's the time to buy. My portfolio added BA yesterday and sold Dupont (DD). With DD only yielding 6% now, BA offers twice the yield, making it much more attractive.

Comments

[Vox Rationalis:]

"This gives BA a buyback yield of nearly 9%. Add on the 2.7% dividend and you get a net payout yield of nearly 12%."

You're assuming the market hasn't priced in the buyback yield. It's quite logical and possible that without the recent share buyback the stock would be as much as 9% lower than it is now.

I'm as big a fan of stock repurchasing as the next guy, but equating this with dividend yields is foolish.

2008 Sep 24 08:29 AM

[jimsep:]

Most likely the shares were bought at much higher prices than the stock is currently. Can somebody explain to me why that has helped the shareholder?
Calling stockbuy-backs a return to the investor is a fallacy.

2008 Sep 24 10:11 AM

[Stone Fox C...:]

In all due respect, buyback yields have been shown to provide higher rates of return. Read my prior article and the link to the primarry study. Yes, its very likely that the company bought at higher prices, but regardless that will reduce shares and increase earnings. BA will likely continue buying at these lower levels and therefore the dip is even more beneficial to long term holders. The fallacy is the investor that ignores part of an equation.

2008 Sep 24 10:35 AM

[Stone Fox C...:]

Still a good buy in this crazy market.

2008 Sep 29 12:48 AM

[User 272846:]

Boeing keeps buying its own stock because they know it's going to go up sooner or later. It's low price right now is great to invest in. They have over 900 of their new 787 that has yet to be delivered and oncce it starts delivering, the stock will go up to $150 per share. Guaranteed!!! It's just a matter of time when the economy recovers. There is also no other place to invest. With Boeing, you've got tangible assets being delivered. America cannot survive with Boeing. They makes planes, missiles, radars, satellites, rockets, jet fighters, etc. They supply parts that keeps everyone flying everyday. They have physical assets that delivers tangible products unlike Google, which makes money on clickable ads and through stock manipulation and speculations.

2008 Sep 30 01:15 PM

[PeteK:]

Don't forget, some people said the same thing about GM. The same kind of workers who destroyed GM & Ford. Boeing share may go down to $19
if the strikes go on and on. Then, there will be order cancelations follow.
In some cases, Boeing may have to pay penalty for not delivering.
Get rid of shares will be wise.

2008 Oct 15 06:51 AM