There is always a bull market somewhere. Even when the stock market is moving sideways, there are pockets of opportunity that are ripe for big profits.
In 2015, the Dow Jones Industrial Average has risen just 1.6%. Gains from the S&P 500 aren’t much better at just 2.3%. But don’t let that weak performance get you down.
The best Dow dividend stocks have done far better. Year-to-date, the best Dow dividend stock has been Boeing (NYSE: BA). With YTD gains of 18%, the airplane manufacturer is beating the Dow by more than 10-to-1.
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The surprising thing is that Boeing stock moved sideways last year. Yet starting in early 2015, the stock took flight.
What’s fueling the rapid rise for Boeing shares? The lessons behind Boeing’s stock price move are simple.
First, Boeing is rewarding its shareholders. Investors love to know that they’re important to the CEO. These days, the best way for investors to feel that love is through shareholder-friendly initiatives, including share repurchases and dividends.
Boeing took an important step late last year. The company boosted its dividend by 25% and increased the share buyback plan to $12 billion. Analysts had been expecting a much smaller increase, and the news sent Boeing shares rising.
Second, investors want to invest in companies that are thriving. The best way to prove their success is to exceed expectations.
Boeing delivered on this front, too. In mid-January, Boeing shares moved higher after a solid earnings report. Specifically, 28% earnings growth far surpassed analyst expectations. Boeing has beat earnings estimates in each of the last four quarterly reports.
This positive news sent Boeing stock to an all-time high of $158 in late February. Shares have since retreated to $152.
Today, Boeing offers investors an annual dividend of $3.64. That translates into a 2.4% dividend yield, based upon the recent share price. That dividend yield wouldn’t be described as high-yield. In fact, it’s just below the average 2.5% dividend yield from other stocks in the Dow.
Boeing is what I consider a dividend growth stock. Over the past two years, the dividend has increased 88%. And over the past 10 years, the dividend has grown 192%.
Similarly, Boeing shares have performed well during this period of rapid dividend growth. In the last two years, the stock is up 75%. And in the last decade, the stock has soared 139%, well ahead of the 73% gain for the Dow.
Even after these big gains, Boeing stock is attractively priced. The stock trades at a P/E multiple of 18 times 2015 EPS estimates. That’s on par with other blue chip stocks.
Boeing provides an important lesson when it comes to income investing. The stock isn’t the highest yielding stock in the Dow. In fact, among the 30 Dow components Boeing ranks No. 20 in terms of dividend yield.
What Boeing has going for it isn’t its high yield. It’s the company’s earnings growth, dividend growth and aggressive share buyback plan. Those factors are contributing to healthy overall returns for this stock.
Of course, Boeing isn’t alone. There are other companies with this trifecta of factors that are contributing to their success (click here to get my top dividend stock recommendations).
Of the 30 stocks in the Dow Jones Industrial Average, 19 companies are posting year-to-date gains. Of those in the black, there are several big winners. After Boeing, the next four best performing Dow dividend stocks include:
- UnitedHealth Group (NYSE: UNH) +16.5%
- Apple (NASDAQ: AAPL) +15.3%
- Pfizer (NYSE: PFE) +14%
- Disney (NYSE: DIS) +13.6%
All of the top five best performing Dow dividend stocks are similar to Boeing. None are in the airline or defense industry, but all three have earnings growth, dividend growth and stock buybacks.
In this market, it isn’t the size of the yield that matters. It’s dividend growth and share buybacks that matter to income investors. If you’re looking for big capital gains from dividend stocks, you’d better be looking for stocks like Boeing.
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