Aerospace giant The Boeing Company surprised investors by announcing a hike in future dividends and boosting its share buyback program. Amid a difficult defense and aerospace environment due to concerns over lofty valuations, defense budget cuts and cost overruns related to delayed deliveries, the unexpected hike in the dividend has helped to restore investors’ confidence in the space.
The increase comes in spite of the company having to spend heavily on ramped up deliveries. Boeing shares – which are trading 11% lower this year – jumped 2.3% higher to $124.89 following the news in after-market trading yesterday (read: Strong Aerospace and Defense Stock Earnings Put These ETFs in Focus).
Dividend Hike & Share Buyback
The world’s largest planemaker has hiked its quarterly dividend by an unexpected 25% to 91 cents a share from 73 cents per share. The dividend increase follows two previous hikes this year, with the increased dividend payable on March 6 to shareholders of record as of February 13. Moreover, the company has expanded its share repurchase authorization from $10 billion to $12 billion, the biggest ever in its history.
“Strong operating performance across our business continues to generate significant cash flow and financial strength for Boeing,” as per the company’s Chief Executive Officer Jim McNerney.
Boeing may from the oil crash as the buyers of its commercial airplanes, namely the airlines, will be encouraged to buy the thousands of aircraft they currently have on order from Boeing. Reduced oil prices are expected to stimulate flying, and thus could boost jet demand as well
The recent dividend hike and lower oil prices are likely to boost Boeing’s share prices in the coming days indicating bullishness ahead. This is likely to boost the performance of industrial and aerospace ETFs that have a large exposure to the company.
Below, we have highlighted three ETFs with the highest allocation to Boeing that could be big movers following the company’s dividend hike and share buyback boost. Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in BA’s price in the coming days.
iShares DJSU Aerospace & Defense (NYSE:ITA)
The fund tracks the Dow Jones U.S. Select Aerospace & Defense Index to provide exposure to the aerospace and defense sector of the U.S. equity market. The fund manages an asset base of $365.9 million and trades in moderate volumes of roughly 38,000 shares a day.
The fund holds 39 securities in its basket with Boeing taking the second spot with 7.9% allocation. ITA has a decent dividend yield of 1.31% and has returned 4.4% in the year-to-date time frame. The fund charges 43 basis points as fees and currently carries a Zacks ETF Rank #2 (Buy) (see all Industrials ETFs here).
PowerShares Aerospace & Defense (NYSE:PPA)
PPA tracks companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. The product has managed to garner $205.9 million in assets so far, which are currently invested in 52 securities.
Boeing scores among the top 10 holdings with 5.9% exposure. The fund charges 66 basis points in expenses and has returned 7.8% so far this year. PPA has a dividend yield of 0.72% and currently has a Zacks ETF Rank #2.
Industrial Sector SPDR Trust (ARCA:XLI)
This is by far the most popular industrial ETF in the space with more than $9.1 billion in AUM and an average daily volume of nearly 12 million shares. The fund follows the S&P 500 Industrial Select Sector Index, holding roughly 64 stocks in its basket (read: Strong Industrial Stock Earnings Put These ETFs in Focus).
The product allocates about one-fourth of the assets to aerospace & defense while industrial conglomerates, machinery, and road & rail make up for double-digit allocation. In terms of holdings, General Electric Company (NYSE:GE) takes the top spot at 9.5% while Boeing holds the fifth spot with 4.4% exposure. This ETF is up about 6% this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.