Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Boeing Suppliers Offer a 5 Percent Dividend Yield
Transcript
- Lucas: Luna, when people think 'dividend stock' they usually go straight to consumer staples or utilities. But there's an industrial pocket that's quietly yielding over five percent right now, and it's tied to Boeing's airplane backlog. Luna: Aerospace suppliers. I've seen some of those yields but always assumed they were too cyclical to hold in a portfolio long-term. Lucas: That's the conventional wisdom, and it's partly true. But look at what's happened over the past week. The S&P 500 is down about two percent in five days, the Nasdaq's off three percent. The ten-year Treasury is at four point five one percent. Investors are scrambling for income that doesn't come with tech-level volatility. Luna: And aerospace suppliers are getting lumped into that sell-off even though their underlying business is on a multi-year upswing. Lucas: Exactly. Take Spirit AeroSystems. They're Boeing's largest supplier—they build about seventy percent of the 737 fuselage. The stock yields over five percent right now. And their revenue is essentially contracted out years in advance because Boeing has a backlog of over five thousand planes. Luna: So that yield isn't just a distressed company paying out to keep investors happy. It's backed by actual production schedules. Lucas: Right. Boeing delivered about five hundred planes last year. They've publicly targeted increasing that to seven hundred by 2028. Spirit gets paid per ship set delivered. If Boeing hits those numbers, Spirit's cash flow grows automatically. Luna: But Boeing has a history of missing production targets. And Spirit itself went through that quality crisis in 2024. How safe is the dividend if Boeing stumbles again? Lucas: It's a legitimate risk. Spirit's payout ratio is about sixty percent of free cash flow, which gives them cushion. They also have a defense segment—they build parts for the B-52 and other military programs—that adds stability. And Hexcel, another supplier, yields around four point eight percent. They make composite materials used in both Boeing and Airbus planes, plus defense and space. Luna: So you're diversifying across customers a bit with Hexcel, but Boeing is still the tail that wags the dog for the whole supply chain. Lucas: No doubt. And that's the trade-off. You're getting a yield that beats the ten-year Treasury by about fifty basis points, but you're taking on single-customer concentration. The counterargument is that Boeing can't afford to let its key suppliers fail—they're too integrated into the production system. Luna: So the dividend is quasi-protected by Boeing's own self-interest? Lucas: I think that's a fair way to put it. During the 737 MAX crisis, Boeing actually accelerated payments to suppliers to keep them solvent. They know that if Spirit goes under, it takes years to rebuild that capability. Luna: Still, I'd want to see what happens if we hit a recession. Airlines defer orders, Boeing cuts production, and suddenly that five percent yield doesn't feel so safe. Lucas: True. But here's the thing—aerospace is cyclical, but the cycle turns on delivery schedules, not on quarterly earnings surprises. The backlog provides visibility. Spirit has about seven years of revenue in its order book. That's more visibility than most consumer staples companies have. Luna: What about the debt load? Boeing's balance sheet is still pretty leveraged after the pandemic and the MAX crisis. If they need to cut costs, suppliers get squeezed first. Lucas: Boeing's net debt is around forty billion dollars. That's high, but they're generating positive free cash flow now. And their credit rating is still investment grade—BBB minus from S&P. That means they can access capital markets if needed. The suppliers themselves have manageable debt. Spirit's net debt to EBITDA is about two and a half times. Hexcel is under two times. So the dividend coverage is solid. Luna: Alright, so who is this actually for? An income investor who wants something different from utilities and REITs? Lucas: Exactly. If you're building a dividend portfolio and you already have positions in companies like Coca-Cola, Johnson & Johnson, Procter & Gamble—those are great, but they're yielding around three percent or less. A stock like Spirit gives you almost double that yield, with a growth catalyst that those staples don't have. Luna: The growth being the commercial aerospace upcycle. Lucas: Right. Global air travel is expected to grow about four percent annually over the next decade. Airlines need more fuel-efficient planes. Boeing and Airbus both have backlogs stretching into the 2030s. The suppliers are essentially leveraged plays on that trend. Luna: But they also have defense exposure. Spirit and Hexcel both do work for the Pentagon. That adds a non-cyclical layer. Lucas: Good point. Hexcel gets about thirty percent of revenue from defense and space. That business isn't correlated to airline travel at all. So the dividend has a floor even if commercial aviation hits a soft patch. Luna: So the case is: you get a higher yield than Treasuries, backed by long-term contracts, with a built-in growth driver from aerospace demand, and a defense backstop. The main risk is Boeing execution. Lucas: That's the nutshell. And for an investor with a five- to ten-year horizon, I think the risk-reward is attractive. You're not going to see the same volatility as a tech stock, and you're getting paid to wait. Luna: You know, it's funny. We talk a lot about dividend safety, but sometimes the safest dividends are the ones that require a little homework. Lucas: Absolutely. And speaking of homework—if today's episode helped you think about dividend investing differently, that's exactly what we're here for. Our show is ad-free and listener-supported, and if you found value in this conversation, you can toss a coffee our way at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that keeps these deep dives coming. We don't do ads, so listener support is what makes this possible. Lucas: Exactly. And on that note—if you do decide to look into aerospace suppliers, pay attention to the payout ratio and the backlog trend. Those two numbers tell you more than any price chart. Luna: Fair point. Next episode, I want to talk about something completely different. Let's look at how dividend ETFs are handling the small-cap rotation. Lucas: Perfect. We'll see you next time.