Northrop Grumman Corp. NOC recently announced that its board of directors approved a hike in its quarterly dividend to $1.87 per share, reflecting an increase of 8% from the prior payout. With the current hike, Northrop will now pay out an annual dividend of $7.48 per share. This represents an annual dividend yield of 1.72% based on its share price worth $435.63 as of May 16.
NOC’s annualized dividend yield is higher than the Zacks S&P 500 composite’s yield of 1.53%. This signifies Northrop’s strength in the business to generate enough cash flow to reward shareholders with improved dividend payouts.
Can Northrop Grumman Sustain Dividend Hikes?
Northrop Grumman has been consistently boosting shareholder returns, as gauged by its payout of $953 million, $983 million and $1,052 million in 2020, 2021 and 2022, respectively. Such a solid distribution strategy is generally buoyed by the steady performance of a company in generating sales and stable cash flows from operations.
NOC recorded a 6% increase in its sales in the last reported quarter. Meanwhile, its operating cash flow came in at $702 million at the end of the first quarter of 2023 compared with $488 million in the year-ago quarter.
Going forward, Northrop Grumman expects to generate sales in the band of $38-$38.40 billion for 2023, which suggests an upside of 4.4% from the prior-year reported figure. Such an improvement in sales may allow the company to sustain dividend hikes in the days ahead.
Moreover, Northrop Grumman’s business strength lies in the orders and new awards the company receives as one of the prime defense contractors, which converts into a robust backlog. NOC entered 2023 with a backlog of more than two times its annual sales, backed by increasing demand and rising global defense budget supports.
Also, the U.S. Department of Defense budget request for fiscal 2024 reflects a funding proposal of $842 billion, which represents an increase of $25 billion or 3% over the FY23 enacted funding. Such enhanced defense funding should increase the demand for Northrop products, boosting prospects for a strong order inflow in the days ahead.
In light of the aforementioned factors, one may conclude that NOC may continue to witness a strong revenue performance and order inflows. These may assist the company in undertaking such shareholder-friendly moves going forward.
Defense companies that have been engaging in rewarding shareholders with impressive dividend payouts are as follows:
In September 2022, Lockheed Martin LMT approved a hike in its quarterly dividend of 20 cents per share from the prior payout.
LMT boasts a long-term earnings growth rate of 6.2%. Shares of Lockheed have delivered 1.6% in the past year.
On May 10, 2023, Curtiss-Wright CW announced that the board of directors declared a 5% increase in the quarterly dividend to 20 cents per share.
The Zacks Consensus Estimate for Curtiss-Wright’s 2023 sales suggests a growth rate of 5.2% from the prior-year reported figure. CW shares have risen 14.2% in the past year.
In April 2023, Raytheon Technologies RTX announced an increase of 7.3% over the prior quarter's dividend amount.
RTX has a long-term earnings growth rate of 8.3%. Shares of Raytheon have increased 3.1% in the past year.
In the past year, shares of Northrop Grumman have dropped 4.2% compared with the industry’s decline of 2.9%.
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Northrop Grumman currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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