Boeing, under new CEO Dave Calhoun, now appears to be taking a more conservative approach to both its relationship with global regulators and its communications with Wall Street.
However, continued slippage in the MAX's return-to-service timeline creates growing anxiety for income investors as Boeing's liquidity comes under greater pressure with each passing month.
In fact, the latest delays have potential to boost the total costs related to the MAX crisis to $25 billion. This includes damages Boeing owes to affected airline customers and higher production costs that will be spread over future planes it builds and delivers, reducing the program's future profitability.
Meanwhile, without being able to deliver its MAX planes to customers, Boeing is left burning through cash (likely over $1 billion each month). We even downgraded Boeing's Dividend Safety Score in October 2019 due to concerns about a prolonged return-to-service delay straining the company's financial flexibility.
On one hand, a case could be made for Boeing to temporarily suspend its dividend, which consumes nearly $5 billion annually.
While painful for shareholders, this would improve the plane maker's liquidity (Boeing ended last quarter with about $11 billion in cash and needs to tap debt markets), strengthen its credit profile (Boeing's credit rating is on review for a downgrade), and perhaps help appease some of the company's critics.
Fortunately, in an interview on Wednesday, Boeing's new CEO said the company does not plan to cut or suspend its dividend since the firm has the "financial capacity to do the things we need to do." Boeing expects to "stay on that path unless something dramatic changes."
So long as the latest timeline stands, Boeing's dividend seems likely to remain steady, especially since the issues behind the latest delay (e.g. more pilot training) don't appear serious or likely to threaten the 737 MAX program's viability.
Talk is cheap, but it would be surprising for the new CEO to backtrack on his comments barring another material setback. It's just increasingly critical that the company and regulators finally meet expectations this time.
Boeing reports earnings on January 29 and will provide financial insight into its outlook for the year ahead. While the MAX crisis does not appear to be an existential threat to Boeing (thanks in part to the firm's duopoly with Airbus), it has dealt a blow to Boeing's balance sheet, long-term profitability, dividend growth outlook, and overall reputation.
Coupled with the stock's surprisingly resilient valuation, Boeing is on a very short leash in our Top 20 Dividend Stocks portfolio, where we are open to exploring alternative ideas that have stronger dividend profiles and fewer company-specific challenges to overcome.