The Boeing Company (BA) Dreamliner Catches Fire and Boeing Stock Plunges

For example, the 787 Dreamliner is the fastest-selling plane ever, if you just look at orders. But again, Boeing doesn’t get paid until it delivers the planes, and it’s delivered only 66 of them. With around 900 orders, at the current rate of just seven planes built per month, it would take Boeing more than a decade to deliver all these planes to customers. Even the 737 Next Generation program, which at 38 planes per month is Boeing’s fastest production pipeline, would take more than four years to deliver every order currently in the backlog.

These rates will increase as the company gains experience building the planes, but real cash flow, and therefore real upside potential, is very much limited by how quickly the company can safely manufacture and deliver these planes. And projected production ramp-ups don’t always materialize as planned. For example, Boeing has repeatedly announced plans to increase 787 production to 10 per month by the end of 2013. It was reported Thursday, however, that Boeing’s South Carolina plant, which is supposed to contribute three Dreamliners per month, is turning out only half that amount and won’t be able to hit its total this year.

The takeaway is that Boeing just isn’t a company that can really perform beyond expectations. Projected production rate increases are basically best-case scenarios, and any outperformance in this area will be pretty modest. While the upside potential is limited, the downside potential is vast. Another grounding of the Dreamliner fleet could stall investor returns for many years, while an even greater bad surprise — say, a mistake in the manufacturing process that leads to a fatal crash — could literally force Boeing back to the drawing board on a product and crush the stock.

As far as dividend investing goes, Boeing also doesn’t have anything to get excited about. The yield is under 2%, below the S&P 500 average, and the annual growth rate of the dividend has been in the low single digits in recent years. While Boeing stock has been outperforming the S&P 500 so far this year, I look at the stock and see meager dividends and a strict capacity constraint on potential growth, nothing that could compensate me for taking on the huge risks in buying this stock.

The article Boeing Dreamliner Catches Fire and Boeing Stock Plunges originally appeared on Fool.com is written by Daniel Ferry.

Fool contributor Daniel Ferry and The Motley Fool have no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.