Are Defense and Aerospace Stocks Good Stocks to Own?

When the economy and the market starts heading south, many investors start buying Dividend Stocks. They have long been considered a defensive position in turbulent times. Given many investors' recent defensive stance, one might ask how about some real defense stocks, as in the Aerospace and Defense industry. Here are five for your consideration:

Honeywell International Inc. (HON)
The company is the world’s largest maker of cockpit controls, small jet engines and climate control equipment, HON also makes industrial materials and automotive products. HON has an attractive yield of over 3.5%, but with only two consecutive years of dividend increases this defense stock misfired as a defensive stock.

Northrop Grumman Corp. (NOC)
NOC is the world’s third largest producer of military arms and equipment, and also has a large government IT services business. NOC is another stock with a good yield of around 3.5%, but with only five years of consecutive dividend increases it is too early to invite it into my income portfolio.

The Boeing Co. (BA)
The company is the world’s second largest commercial jet and military weapons manufacturer, and the U.S.’s largest exporter. BA has an impressive dividend yield close to 4%, but with only five years of consecutive dividend increases, I am not ready to fly solo with it.

General Dynamics Corp (GD)
General Dynamics is the world’s sixth largest military contractor and also one of the world’s biggest makers of corporate jets. This Dividend Achiever’s stock is currently yielding a little over 2.5% and has increased its dividend for the last 15 years. I was very high on GD back when I did this analysis, but with its recent increase in share price and drop in yield, I am waiting for a more favorable entry point.

United Technologies Corp (UTX)
UTX is an aerospace-industrial conglomerate whose portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators, and Carrier air conditioners, among other products. This Dividend Achiever’s stock is currently yielding around 3% and has increased its dividend for the last 17 years. See my most recent analysis.

Aerospace and defense companies that do a lot of government work usually enjoy long contracts and are in a good position to weather economic downturns. However, to varying degrees, each of the above companies also is engaged in non-government commercial business that will be more affected by the economic downturn. There is certainly a spot for aerospace and defense in my income portfolio, but I will wait for the right time and entry price.

Disclosure: Long UTX. See a list of all my income holdings here.

Comments

[Lightway:]

Thanks for the analysis. I have wanted to look at this sector for the longest time, but didn't really understand these companies well enough and how they fit into the bigger economic picture. UTX seems to be the most diversified.

My concern with this sector is the possibility of decreased spending over the next few years, due to the exit from Iraq and the administration's goal of bringing down the deficit. I am going to assume that defense spending will get some big cuts.

Jun 03 12:09 PM

[PastTense:]

Besides the defense cuts because of the deficits and the Democratic administrations/Congre... preference for social programs there is also the defense strategy the administration/Congress wants. A continuing shift toward fighting small, local wars vs the type of defense you need for fighting Russia means there will probably be some big winners and some big losers among the defense contractors as various programs are halted and others are started. So you need to look closely at exactly what they manufacture.

Jun 03 12:22 PM

[john s. gordon:]

this brings up anew the question we have had for some time -
how many additional nuclear aircraft carriers do we need anyway?
> jack

Jun 04 09:50 AM

[kansaslifter:]

Seven months ago, when it seemed like everything was a bargain, I knew that Boeing was. Likewise, BE Aerospace and Goodrich. The entire sector was undervalued. My Boeing is up 30%. BE Aerospace is up 102%, Goodrich is up 75%. And yeah, I bought Bank of America when their CEO did at $4. My only weak pick was General Electric (jet engines) which is down 10% from my purchase price.

Why don't we get the info from the gurus when prices are low?

Jun 04 11:07 AM

[Vaun:]

"Besides the defense cuts because of the deficits and the Democratic administrations/Congre... "

The defense budget was raised this year. Check your facts.

Jun 04 11:08 AM

[Vaun:]

If you like this sector you might want to peek at the ETF PPA.

Jun 04 11:08 AM

[Lightway:]

Yes, but I believe this is because Obama actually put the money that went towards the special appropriations bills (pretty much the entire amount for the extension of funding in Iraq and Afghanistan), into the actual budget.

Previously, this amount was being spent, it was just off of the budget books. Placing it on the budget gives it visibility and accountability.


On Jun 04 11:08 AM Vaun wrote:

> "Besides the defense cuts because of the deficits and the Democratic
> administrations/Congre... "
>
> The defense budget was raised this year. Check your facts.

Jun 04 12:52 PM

[Jim Regan:]

What ever happened to the best two defense contractors in the United States: Raytheon (RTN) and Lockheed Martin (LMT)?

Jun 04 06:56 PM

[Dmseaman:]

How could you leave out Lockheed Martin, they are the best of the bunch and they are clearly primed to be at the head of the class for the new Cyber Security Command that is being stood up as we speak. The Cold War and it's big ticket weapons systems are "easier" targets for defense cuts. Asymetric warfare is mcu less profitable, but cyber security that's where you drive those margins! And this battlefield has only begun to take shape, once again sadly America is late to the game so our answer will be to out spend our adversaries. This is what will drive the defense industry for years to come, and LMT is in a great position to benefit from mulitbillion dollar contracts that will be rolling out of Congress in the years to come.

Disclaimer, following LMT waiting on a pullback around $74.85

Jun 06 04:48 PM

[Lightway:]

Great comment on asymmetrical warfare - I had no idea that Lockheed Martin was one of the companies primed to head up the new command.

Cyber attacks will become more of a reality. This is the equivalent of international piracy and terrorism in cyberspace. There are robust gangs out there already operating on huge scales, and the reality is that governments will hire out these gangs through impossible to trace backchannels, much in the way governments have hired out terrorist groups to do dirty work.

The attacks in Estonia, which nearly shut the entire country down, are a preview of things to come:

en.wikipedia.org/wiki/...


On Jun 06 04:48 PM Dmseaman wrote:

> How could you leave out Lockheed Martin, they are the best of the
> bunch and they are clearly primed to be at the head of the class
> for the new Cyber Security Command that is being stood up as we speak.
> The Cold War and it's big ticket weapons systems are "easier" targets
> for defense cuts. Asymetric warfare is mcu less profitable, but cyber
> security that's where you drive those margins! And this battlefield
> has only begun to take shape, once again sadly America is late to
> the game so our answer will be to out spend our adversaries. This
> is what will drive the defense industry for years to come, and LMT
> is in a great position to benefit from mulitbillion dollar contracts
> that will be rolling out of Congress in the years to come.
>
> Disclaimer, following LMT waiting on a pullback around $74.85

Jun 06 06:05 PM

[sticktoitiv...:]

"this brings up anew the question we have had for some time -
how many additional nuclear aircraft carriers do we need anyway?"

As many as we can afford. Each one has as much firepower as a small country's entire air force and can be quickly move to any enemy's doorstep.

Jun 07 01:43 AM

[Duble1:]

Check your data on HONEYWELL - They have increased the dividend 10% the last 5 years.


On Jun 03 12:09 PM Lightway wrote:

> Thanks for the analysis. I have wanted to look at this sector for
> the longest time, but didn't really understand these companies well
> enough and how they fit into the bigger economic picture. UTX seems
> to be the most diversified.
>
> My concern with this sector is the possibility of decreased spending
> over the next few years, due to the exit from Iraq and the administration's
> goal of bringing down the deficit. I am going to assume that defense
> spending will get some big cuts.

Jun 08 10:03 PM