General Dynamics Corporation: A Dividend Aristocrat You Likely Haven’t Considered
GD Stock Returning Value to Investors
Today’s chart highlights a top dividend stock that most people have never considered, General Dynamics Corporation (NYSE:GD).
For those not in the know, General Dynamics is a multinational aerospace and defense corporation. Headquartered in Falls Church, Virginia, the company offers a broad portfolio of products and services through four operating segments: Business Aviation; Combat Vehicles, Weapons Systems and Munitions; C4ISR and IT Solutions; and Shipbuilding. With total revenues of $31.0 billion in 2017, General Dynamics is one of the largest defense contractors in the world.
Dividend investors usually prefer stable sectors such as banking, utilities, and consumer staples. But as a defense contractor, General Dynamics still managed to build an amazing dividend growth history. The company has been paying increasing dividends for 26 consecutive years. (Source: “Dividend/Split History,” General Dynamics Corporation, last accessed April 25, 2018.)
In fact, GD stock was added to the list of “dividend aristocrats” last year. To earn this title, a company needs to have at least 25 consecutive years of annual dividend increases.
The chart below shows the amount of dividends General Dynamics declared for each of the last five years:
General Dynamics Corporation Dividend History
As you can see, recent dividend increases have been quite substantial. In 2013, General Dynamics declared total dividends of $2.24 per share. In 2017, the amount had grown to $3.36 per share for an increase of 50%.
Earlier this year, the defense contractor raised its payout again. It was a 10.7% increase to the company’s quarterly dividend rate to $0.93 per share.
Trading at $214.53 apiece, GD stock offers an annual dividend yield of 1.73%.
While you can find plenty of stocks with higher yields, General Dynamics’ double-digit dividend growth rate implies that over time, investors could collect a much higher yield on cost.
Furthermore, those dividend hikes were backed by a growing business. General Dynamics recently reported earnings. In the first quarter of 2018, the company generated $7.5 billion in revenue, up 1.3% year-over-year. The bottom line number turned out to be even better; for the quarter, General Dynamics’ diluted earnings from continuing operations came in at $2.65 per share, representing a 6.9% increase from the year-ago period. (Source: “General Dynamics Reports First-Quarter 2018 Results,” General Dynamics Corporation, April 25, 2018.)
The key to note here is that with earnings of $2.65 per share, General Dynamics’ quarterly dividend rate of $0.93 per share comes out to a payout ratio of just 35%. This not only leaves a wide margin of safety, but also gives the company plenty of room for future dividend increases.
Mind you, General Dynamics is also sitting on $62.1 billion in contract backlogs at the end of the first quarter of 2018. This could provide future growth potential for the defense contractor.
Bottom line: General Dynamics may not come from the most stable industry, but the company’s low payout ratio and strong dividend growth still makes it worth considering for income investors.