Buy Raytheon For Dividend Growth During The Summer Market Pullback

Apr.28.13 | About: Raytheon Company (RTN)

Several analysts, including some of my favorite Seeking Alpha writers, say that we are on the cusp of a pullback in the stock market: for example Stock Market Triple Fantasy and Looking For Bargains And Safety. Whether the reason is seasonal "Sell in May and go away" or cyclical, the bull market which started in March 2009 is getting long in the tooth. What stocks grow your income during such a time?

One choice in the aerospace/defense industry is Raytheon Co. (NYSE:RTN). Raytheon Company, together with its subsidiaries, provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as a range of mission support. When there is a severe market pullback, the S&P 500 drops and takes most sectors with it.

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The S&P 500 ETF (NYSEARCA:SPY) is paying 2.03% yield, while Raytheon pays 3.8% and Lockheed Martin (NYSE:LMT) pays 4.7%. I prefer Raytheon to Lockheed Martin, due to their total debt/total assets ratio of 69.92% vs. LMT's debt/total assets ratio of 99.89%.

Back in August 2011, I purchased RTN at the 4% yield point. Since that time I have dripped the stock and seen my yield on average cost rise to 5.06%. I will demonstrate the 5 year dividend growth of this investment. However, I didn't invest until the price of the stock met my 4% minimum yield rule for a dividend growth stock.

Stock Date of reinvest Div Rate # Shares Dividend Drip price # Shares pur Total Value Current Yield
Totals 203.78 $1,486.88 29.69
04/01/13 $0.55 201.86 $111.02 $57.89 1.92 $11,796.55 3.80%
12/28/12 $0.55 199.92 $109.96 $56.70 1.94 $11,445.32 3.88%
10/01/12 $0.50 198.14 $99.07 $55.58 1.78 $11,111.45 3.60%
07/02/12 $0.50 196.38 $98.19 $55.98 1.75 $11,091.64 3.57%
04/02/12 $0.50 194.54 $97.27 $52.70 1.85 $10,349.32 3.80%
12/30/11 $0.43 192.82 $82.91 $48.38 1.71 $9,411.65 3.56%
10/03/11 $0.43 190.75 $82.02 $39.50 2.08 $7,616.48 4.35%
RTN 07/01/11 $0.43 189.12 $81.32 $50.11 1.62 $9,558.27 3.43%
04/04/11 $0.43 187.52 $80.64 $50.46 1.60 $9,543.14 3.41%
01/03/11 $0.38 186.01 $69.75 $46.09 1.51 $8,643.02 3.25%
10/01/10 $0.38 184.46 $69.17 $44.61 1.55 $8,297.97 3.36%
07/01/10 $0.38 183.02 $68.63 $47.73 1.44 $8,804.31 3.14%
04/01/10 $0.38 181.82 $68.18 $56.92 1.20 $10,417.66 2.64%
12/30/09 $0.31 180.75 $56.03 $52.18 1.07 $9,487.63 2.38%
10/02/09 $0.31 179.54 $55.66 $46.01 1.21 $8,316.36 2.70%
07/02/09 $0.31 178.26 $55.26 $43.01 1.28 $7,722.08 2.88%
04/03/09 $0.31 176.83 $54.82 $38.47 1.42 $6,857.53 3.22%
12/30/08 $0.28 175.86 $49.24 $50.67 .97 $8,960.06 2.21%
10/03/08 $0.28 174.94 $48.98 $53.17 .92 $9,350.47 2.11%
07/08/08 $0.28 174.09 $48.75 $57.44 .85 $10,048.47 1.95%
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Further, I have graphed these results:

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The total return for my investment since the third quarter of 2011 has been 54.88% so far, or 33.86% annually for the 6 quarters that I have dripped the stock.

There are a number of catalysts that I like in RTN. It is a member of David Fish's Dividend Challengers with 9 years of consecutive dividend increases. The 1 year dividend growth rate is 15.9%, while the 5 year dividend growth rate is 13.9% and the 10 year dividend growth rate is 25.4%. It has a positive Tweed Factor rating of 7.3 and Chowder rule rating of 17.7. (Data from David Fish's CCC charts and Yahoo Finance).

The results for the first quarter of 2013 were good and management beat analysts expectations by $.21 per share. Management raised their FY2013 earnings estimate to $5.75-$5.90 from previous estimates of $5.65 to $5.80.

Conclusion: During unsettled times, like the present with international terrorism, civil wars, like Syria, and the interaction of Israel with the rest of the middle east, military arms stocks can provide good dividend yields. Even if there is a pullback in the markets, I believe that Raytheon will continue to raise its dividend and provide a safe income stream. Investment in any stock goes hand in hand with the acceptance of risk. During my retirement, I have gravitated toward reliable dividend paying stocks, especially when there are the signs of market pullback.

Disclosure: I am long RTN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.