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5 Dividend Stocks Focused on Defense

Government spending is key to dividend growth for the sector

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Everyone knows that the U.S. is running huge budget deficits. As a result, the U.S. has a multi-trillion dollar debt load. Early on in 2013, we witnessed some automatic spending cuts by the Federal government, which affected government spending on defense. We are currently all witnessing the Debt Ceiling theater, which is the ultimate stupidity in the making. In addition, with the wars in Iraq and Afghanistan being close to complete, it looks like companies in the defense sector might have a tough time generating much in terms of earnings and dividend growth over the next decade.

Defense companies earn money from providing products and services for U.S. government. If government pays them for research, and companies can use this knowledge, then this know-how could bolster prospects of earnings significantly over time. The relationship between inventions and profitability is not linear, as it takes time for an idea to come to market and reach a certain level of following, before generating profits. From a long-term perspective however, it could pay dividends for years to come.

The past decade had been tremendously profitable for defense companies such as Lockheed Martin (LMT), Raytheon (RTN), General Dynamics (GD) and Northrop Grumman (NOC). These companies enjoyed rising earnings that allowed them to bump up distributions to shareholders every year. Share prices increased as a result of the improved profitability at these corporations as well. Currently, a lot of these companies are looking attractively valued, and also have above average market yields. The question in the minds of many dividend investors is whether these companies are worth purchasing right now.

Lockheed Martin, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products for defense, civil, and commercial applications in the United States and internationally. The company derives over 80% of revenues from US government and US agencies. Approximately 18% is derived from sales to foreign governments. Lockheed Martin has raised dividends for 11 years in a row. Over the past decade, it has managed to boost distributions by 24.70% per year. The outstanding shares from decreased from 450 million in 2003 to 326 million in 2013. Analysts expect that this dividend achiever would earn $9.49 per share in 2013 and $9.68 per share by 2014. In contrast, it earned $8.36 per share in 2012. Currently, the stock is attractively valued at 14.20 times earnings and yields 4.30%. Check my analysis of Lockheed Martin.

General Dynamics, an aerospace and defense company, provides business aviation; combat vehicles, weapons systems, and munitions; military and commercial shipbuilding; and communications and information technology products and services worldwide. The company derives over 66% of revenues from US government. Approximately 13 percent of revenues are derived from international defense the remainder is from commercial customers. General Dynamics  has raised dividends for 22 years in a row. Over the past decade, it has managed to boost distributions by 13% per year. The outstanding shares from decreased from 398 million in 2003 to 353 million in 2013. Analysts expect that this dividend achiever would earn $6.96 per share in 2013 and $7.23 per share by 2014. In contrast, it earned $5.65 per share in 2012. Currently, the stock is attractively valued at 12.60 times forward 2013 earnings and yields 2.60%. Check my analysis of General Dynamics.

Raytheon, 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 services in the United States and internationally. Raytheon  has raised dividends for 9 years in a row. Over the past decade, it has managed to boost distributions by 25.40% per year. The outstanding shares from decreased from 415 million in 2003 to 326 million in 2013. Analysts expect that this dividend stock would earn $5.66 per share in 2013 and $5.95 per share by 2014. In contrast, it earned $5.65 per share in 2012. Currently, the stock is attractively valued at 13.20 times earnings and yields 3%.

Northrop Grumman provides systems, products, and solutions in aerospace, electronics, information systems, and technical service areas to government and commercial customers worldwide. Northrop Grumman  has raised dividends for 10 years in a row. Over the past decade, it has managed to boost distributions by 13% per year. The outstanding shares from decreased from 368 million in 2003 to 238 million in 2013. The company has an open buyback facility to repurchase approximately 25% of outstanding shares by 2015Analysts expect that this dividend achiever would earn $7.78 per share in 2013 and $7.99 per share by 2014. In contrast, it earned $7.81/share in 2012. Currently, the stock is attractively valued at 12.20 times earnings and yields 2.50%.

 
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Article printed from InvestorPlace Media, http://investorplace.com/2013/10/dividend-investors-defensive-stocks-lmt-trn-gd-noc-lll-ko/.

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