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, VIN COLBY (6 clicks)
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The ancient Greek philosopher Heraclitus proclaimed: "War is father of all, king of all. Some it makes gods, some it makes men, some it makes slaves, some free."

Little has changed since these words were recorded around 500 BC. The world was always organized in empires. Until the advent of Britain as the first global superpower at the end of the 18th century, localized empires (China, the Roman Empire, Ottoman Turkey, Imperial Russia, Mughals in India) held sway. Britain was the first global empire based on naval power that could strike anywhere on the globe if her commercial or strategic interests were threatened. The power of Britain slowly waned since 1900 and she had to pass the baton of the policeman of the world to the United States of America in 1945, financially exhausted by two world wars she fought to break Germany's power on the European continent.

There is no doubting that USA is, among other things, a global empire. The fact that it has 900 military bases around the world and that its defense spending dwarfs the rest of the world combined testifies to that simple fact. In this pronouncement of mine I explain to you why the conflict in Syria is constantly escalating, and in this Time article (concerning U.S. military spending), a F-22 raptor is featured which is produced by the Lockheed Martin Corporation (NYSE:LMT).

There aren't many companies that can compete for DoD's procurement, and chief among those that can are the Lockheed Martin Corp and General Dynamics (NYSE:GD). This link leads you to the World's top 100 defense contractors, and the ones I like among them, as long term and safe dividend investments, are those premier suppliers to the U.S. armed forces I mentioned above. I mean, there won't be many startups or Chinese companies offering to build the Zumwalt navy destroyers like General Dynamics does.

Lockheed Martin and General Dynamics compared (Fiscal data as of Dec 31 2012)

Lockheed Martin Corp

General Dynamics Corp

P/E

10.36

8.83

Current yield

5.31%

3.16%

Gross margin

8.89%

11.85 %***

Net profit margin

5.82%

7.86 %

Total revenues (USD millions)

47,182

(332)

Total revenues growth (4 years)

3.33%

1.83%

Net income (USD millions)

2,745

(332)

Net income growth

Fall of 14.67% since 2008

-

FCF*(USD millions)

619****

2,235

FCF growth

Fall of 64.69% since 2008

Fall of 13.66% since 2008

Total cash dividends paid (USD millions)

1,352

893

FCF / Total cash dividends paid

0,47

2.5

EPS growth rate (4 years)

1.72%

-

PEG** ratio

6.02

-

*Free Cash Flow = Total cash from operations - Capital expenditures

**PEG ratio (NYSE:PEG) = P/E ratio / EPS growth rate

*** Because GD has suffered a net loss in 2012 due primarily to a $2 billion non-cash charge for its information systems, I will use the 5 yr. avg. data for GD which I believe are more relevant.

**** Cash from operations was $4.1 billion prior to the pension contribution of $3.6 billion which is not expected to recur in this fiscal year. Source: Lockheed Martin's CEO Discusses Q4 2012 Results

Source: ft.com and msn.com

Warren Buffett on General Dynamics

I have stated my opinion on Lockheed Martin recently in this article, and instead of describing the operations of General Dynamics I will quote this statement that Warren Buffett has made about General Dynamics in 1992:

"We were lucky in our General Dynamics purchase. I had paid little attention to the company until last summer, when it announced it would repurchase about 30% of its shares by way of a Dutch tender. Seeing an arbitrage opportunity, I began buying the stock for Berkshire, expecting to tender our holdings for a small profit. We've made the same sort of commitment perhaps a half- dozen times in the last few years, reaping decent rates of return for the short periods our money has been tied up.

But then I began studying the company and the accomplishments of Bill Anders in the brief time he'd been CEO. And what I saw made my eyes pop: Bill had a clearly articulated and rational strategy; he had been focused and imbued with a sense of urgency in carrying it out; and the results were truly remarkable.

In short order, I dumped my arbitrage thoughts and decided that Berkshire should become a long-term investor with Bill. We were helped in gaining a large position by the fact that a tender greatly swells the volume of trading in a stock. In a one-month period, we were able to purchase 14% of the General Dynamics shares that remained outstanding after the tender was completed."

Warren Buffett currently owns 3,877,122 of GD stock, which is 0.34% of Berkshire's portfolio and 1.1% of the company.

And, yes, Warren Buffett jets around in a luxury Business jet Gulfstream IV SP, he calls "The Indefensible", which is manufactured by General Dynamics.

It is important to understand the political context in which GD and LMT operate, that's why I put in that historical intro. They they produce weapons that defend capitalism and the rule of law and in that they practically have no competitors because of security and political reasons. Their high yield may result from the distaste that the public generally feels in connection with high tech weapon systems.

Bottom line: General Dynamics has fallen 7% and Lockheed Martin has fallen 6.4% since the beginning of this year. I have explained above that the negative earnings and lowered cash flow in 2012 were caused by one off items that do not materially harm these companies and are not expected to recur. I suggest that you accumulate these two stocks if you are looking for high yield, long term investments.

Source: War Dividends: Buy Lockheed Martin And General Dynamics On The Recent Pullback