The aerospace/defense industry is expected to suffer from the U.S. government spending cuts. While at the moment, it is difficult to quantify the impact of sequestration, defense spending is very likely to be reduced. Nevertheless, there are profitable companies that pay rich dividends among the top aerospace/defense companies.
In this article, I tried to determine which of the four top aerospace/defense companies, traded in the U.S., is the most attractive for dividend-seeking investors.
I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most important factors for dividend-seeking investors. Of course, it is also essential that a company has enough earnings growth prospects to maintain increasing dividend payments.
The four stocks are: General Dynamics Corp. (NYSE:GD), Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC), Raytheon Co. (NYSE:RTN). All the data for this article were taken from Yahoo Finance and finviz.com on March 08, before the market open.
The table below presents the four top aerospace/defense companies, their last price, their market cap, the forward annual dividend rate, the forward yield, the payout ratio and the average annual dividend rate of growth for the past ten years. Since GD suffered a loss in the trailing twelve months, payout ratio could not be calculated for this stock.
The charts below present the dividend yield, the forward P/E, and the average annual dividend rate of growth for the past five and ten years, for the four top aerospace/defense companies.
The charts above emphasize the consistency of raising dividend payments during the last five and 10 years. The chart clearly shows that the LMT has raised its payouts at a much higher rate than the other top aerospace/defense companies in the last five and ten years.
RTN Dividend data by YCharts
RTN Dividend data by YCharts
The charts below present the average annual earnings growth estimates for the next 5 years and the price-to-sales ratio of the four companies.
LMT has the highest average annual earnings growth estimates for the next 5 years, and the lowest price-to-sales ratio among the four companies.
The table below shows the most important parameters, for dividend-seeking investors, for the four companies.
Among the four top aerospace/defense companies LMT has the highest dividend yield and it raised its payouts at a much higher rate. Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time. LMT has also the highest average annual earnings growth estimates for the next 5 years, and the lowest price-to-sales ratio among the four companies. In addition, a good time to start a long-term investment in a blue-chip company, which has a long history of steadily increasing its dividend payment, is when due to temporary weakness its dividend yield is historically high. This is the case of Lockheed Martin right now, where the forward annual dividend yield is at 5.18%, much higher than the five year average dividend yield at 4.10%, as it is shown in the charts below.
LMT Dividend data by YCharts
LMT Dividend Yield data by YCharts
In my opinion, Lockheed Martin is the best choice among the top aerospace/defense companies I reviewed for dividend-seeking investors, due to its higher yield and its higher rate of raising dividend payment.