Should You Buy Boeing on the Dip?
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Jul
12
Jonathan Yates
Should You Buy Boeing on the Dip?
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A fire on an Ethiopian Airlines Boeing 787 has the airplane maker down about five points today.

 

Investors should capitalize on this opportunity to buy Boeing (NYSE: BA) for the long term.  Before today’s incident, Boeing was up more than 40% for 2013.  Its price-to-earnings ratio is projected to fall from 20.05 to 14.80 over the next year.

The balance sheet is strong, too, with imposing returns.  The return-on-equity is over 100%, which is stunningly high.  The return-on-investment is more than 25%, which is robust, too.

With the troubles, the management is likely to increase the dividend and launch a share buyback program.  At present, the dividend is just 1.82%.  The average dividend for a member of the Standard & Poor’s 500 Index is around 2%.  But the dividend payout ratio for Boeing is just 20%.  That is about half the historic dividend payout ratio.  That means there is plenty of cash flow to provide the funds to increase the dividend of begin share buyback programs. The more the price of Boeing falls due to the fire on the Ethiopian Boeing 787, the higher the dividend yield will be for those buying on the dip!

Before today’s incident, the short float for Boeing was just 1.28%.  Investors should look upon this as a chance to buy Boeing for its long term potential, both in capital gains and income.  It should be remembered how well Warren Buffett did buying shares of Wal-Mart (NYSE: WMT) after it fell due to concerns with with the Mexican operations.

 



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