General Dynamics Corporation GD recently announced that the board of directors has approved an 8.2% hike in annual dividend. This increased the annualized payout to $4.76 per share from the prior level of $4.40.
The revised quarterly dividend of $1.19 per share will be paid out on May 7, 2021, to stockholders on record as of Apr 9.
Dividend Hike Details
The company boasts a long-standing history of increasing annual dividend in a systematic manner. The latest hike will mark the 24th consecutive annual dividend hike approved by General Dynamics’ board.
The current annualized dividend yield is 2.87%, based on its share price worth $165.77 as of Mar 4. Notably, the company’s dividend yield is better than the industry average of 1.54% and Zacks S&P 500 composite’s 1.40%.
Driving Factors Behind the Dividend Hike
General Dynamics is a major player in the Aerospace – Defense industry and maintains a flexible liquidity position owing to solid operational performance. It is owing to this stable financial position and systematic growth strategy that this defense contractor increases dividend regularly.
General Dynamics ended 2020 with cash and equivalents worth $2.8 billion, which is significantly higher than the year-ago figure of $0.9 billion. Also, the company’s free cash flow worth $2.9 billion at 2020-end increased a solid 45% annually. Such improved cash balance position reflects financial strength, which must have enabled it to fund the latest dividend hike.
Can General Dynamics Maintain Dividend Hikes?
In recent times, General Dynamics has been witnessing strong order growth for combat-proven products, in line with its usual trend. This in turn boosted backlog by 9.8% on a year-over-year basis to a record-high figure of $89.5 billion at the end of fourth-quarter 2020. Such impressive backlog trends reflect solid demand for the company’s products, thereby bolstering its revenue generation prospects significantly.
Further, the fact that General Dynamics had no commercial paper outstanding and $5 billion in committed bank credit facilities for general corporate purposes and working capital needs as of Dec 31, 2020 reflects that its liquidity position is sufficient to maintain business operations smoothly. This, in turn, should enable the company to support the dividend hike program in days ahead.
Dividend Payouts by Other Defense Players
Stable cash flow enables defense companies to reward shareholders with regular dividend hikes, thereby placing them in investors’ good books.
Similar to General Dynamics, another defense major, L3Harris Technologies LHX raised dividend rate in recent times. In February 2021, L3Harris announced a solid 20% hike in dividend payout.
In September 2020, Lockheed Martin LMT increased dividend by 8.3%, while in May 2020, Northrop Grumman Corporation's NOC board of directors approved a 10% hike in quarterly common stock dividend.
Zacks Rank & Price Movement
General Dynamics currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Shares of General Dynamics have gained 1.5% in the past 12 months against the industry’s 9.4% decline.
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