The Clock Is Ticking on Boeing's Dividend

Boeing CEO Dave Calhoun appeared on CNBC this week and said that despite issues surrounding the 737 MAX aircraft, Boeing will pay dividends to investors unless something dramatic happens. During his appearance on the network, Calhoun went on to say, I believe we have the financial capacity and capability to do the things we need to do ... but the recovery, when we get to the end and start shipping airplanes, etc., supports maintaining our dividend. And I will stay on that path unless something dramatic changes. I had the chance to discuss this with TheStreet's Katherine Ross, and you can watch that video here, but let's get into it. We know a CEO is not going to telegraph a dividend cut for it will prompt a meaningful drop in the company's shares. We've seen such reaction in the past when a company's dividend is cut, and there is no reason to think it would be any different in the future. So, while some may call me skeptical, we shouldn't be surprised by Calhoun's dividend comments. So, let's dig into the company's dividend, balance sheet and cash flow to determine how much dividend-paying powder Boeing has until something dramatic happens. Let's start with what we know: Boeing's current quarterly dividend is $2.055 per share, or $8.22 on an annualized basis. And for those dividend yield buffs, the combination of that annual dividend per share and the current share price equates to a 2.66% yield. Not high enough to flash an alert, but well above the 1.9% the shares were yielding just 11 months ago. Boeing has yet to report its December-quarter results, but per its most recent 10-Q filing for the September quarter, Boeing had 562.8 million shares outstanding. Assuming the company keeps its current quarterly dividend intact, and odds are it will, given that 737 MAX issues have led the company to chew through cash and look to borrow up to $10 billion to cover related damages, Boeing will need to pay shareholders roughly $4.6 billion over the coming year. Again the company has yet to report its December-quarter results, but cash and short-term investments on Boeing's balance sheet totaled $10.9 billion exiting September. Now that may seem like enough cash coverage, particularly if we consider Boeing's quarterly dividend payments are about $1.15 billion. But between the June-ending and September-ending 2019 quarters, Boeing's cash flow went negative and it ate through almost $4 billion. With the 737 MAX now not expected to return until late June or July, Boeing will more than likely continue to chew through its cash as it contends with not only absorbing the impact of its own production shutdowns, but as it pays compensation to victims' families, airline customers and airlines like Southwest and American Airlines . Odds are the December quarter will be a messy one, and we'll see a step up in Boeing's cash consumption. And this is what has raised concerns over the company's dividend. At the heart of the matter is the timetable for the return of the 737 MAX. While Boeing now believes that could be late June or July, the issue has been plagued by push-outs, and it's not impossible that new timetable slips yet again. But there is another issue surrounding pilot trust, which was covered in the Financial Times this week: Pilots' unions say that their members' trust in the safety culture at Boeing is at rock bottom following a string of revelations about the grounded 737 MAX, presenting another big hurdle for the manufacturer as its seeks to return the jet to service. That sentiment among pilots stems from more than 100 pages of internal messages that were disclosed to regulators and congressional committees and show Boeing employees attempting to mislead aviation regulators and other look to favor savings over safety. The kicker were comments from Boeing employees that they would not put their own families on the 737 MAX. The point here is that while Boeing may be ready to put the 737 MAX back into service come late June or July, it will have to win over the pilots' union before airlines will open their order books. That could push the real timetable for the aircraft's return to production and generated revenue and cash flow into sometime in the back half of 2020. Meanwhile, Airbus is having a grand 'ole time, and I wouldn't be surprised it if it offers favorable pricing to airlines to fill up their order books while Boeing is sitting on its backside out of the game. It also means that when Boeing and its 737 MAX comes off the bench, it may need to offer some sweetheart pricing, which could impact margins and cash flow, even after it deals with production ramp-up costs for the aircraft. Granted, Boeing has access to credit revolvers, and it wouldn't be the first company to lever up its balance sheet to make good on expected dividend payments, but the clock is ticking, and the longer it ticks the more investors will be raising questions over Boeing's dividend. More insight as to the cash consumption to be had is likely to be had when Boeing reports its December quarter on Jan. 29, and provides investors with an updated look at what it expects with the 737 MAX. Of course, we'll want to match those comments up against what Southwest Airlines, American Airlines, Air Lease and others say about 737 MAX's timing.

The Clock Is Ticking on Boeing's Dividend

Odds are the December quarter will be messy, and we'll see a step up in cash consumption -- this has raised concerns over the company's dividend.

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