gBig, long-term investments can come in a number of ways, but a proven strategy is to find companies in sustainable industries with steadily increasing dividends paid to shareholders every year. And of course, these stocks should be trading at reasonable valuations. An industry with a long history of dividend payments is aerospace and defense. Three high dividend stocks that investors should look at in this sector are Lockheed Martin (NYSE: LMT), General dynamics (NYSE: GD), and Raytheon Technologies (NYSE: RTX). Here’s why.
Lockheed Martin is a large-scale enterprise with products in the fields of aerospace, defense, information security and technology. It sells a variety of defense products to the US government and its allies, including fighter jets like the F-22 and F-35, but it offers dozens of products across the board. In fact, the company designed the Mars helicopter that NASA landed in 2020.
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The company has a solid history of growing profitability. From 2011 to 2020, annual net income increased from $ 2.66 billion to $ 6.89 billion. This profit growth allows Lockheed to steadily increase its dividend. Over the past decade, it has increased its dividend per share each year from $ 3.26 in 2011 to $ 9.87 in 2020. The stock currently has a dividend yield of 2.73%, which is well above the broad S&P 500 index which currently returns 1.32. %. These large and growing dividend payouts were a big contributor to Lockheed Martin’s total return (share price appreciation plus dividends) outperforming the S&P 500, as you can see in the chart below.
General Dynamics is another large aerospace and defense company, albeit a bit smaller than Lockheed Martin, with a market cap of $ 53.4 billion (Lockheed’s is currently $ 106 billion). . The company manufactures products for business aviation, combat vehicles, weapon systems and more. Profits have historically been erratic, with annual net income declining a few times over the past decade, but every year from 2011 to 2020, with the exception of 2012, saw net profits in excess of $ 2 billion. , which shows the resilience of the defense sector.
Last year, net profit was $ 3.16 billion, and 2021 net profit is expected to reach $ 3.25 billion. This strong profitability has led General Dynamics to increase its dividend over the years, from $ 1.85 in 2011 to $ 4.32 in 2020. Shareholders currently earn an annual dividend yield of 2.42%. Like Lockheed Martin, this strong growth in dividend payouts has led to General Dynamics’ total return exceeding the S&P 500 in recent decades.
Like the other two companies listed above, Raytheon is a large-scale defense company (as you can see now, the defense budget of the United States has a lot of dollars to spend). It works in space, missiles and defense, and it owns Collins Aerospace and Pratt & Whitney (an aerospace engine company).
Raytheon’s business struggled in 2020 due to its exposure to commercial aviation with Pratt & Whitney and Collins, with free cash flow falling to $ 1.64 billion, the lowest since 2011. with an annual forecast range of $ 4.5 billion to $ 5 billion. If you look at its dividend history, it looks like Raytheon recently reduced its dividend per share, but that was just the impact of its merger with United Technologies. And with free cash flow picking up in 2021, investors shouldn’t be worried about future dividend cuts either. Raytheon currently has a dividend yield of 2.22%.
It might sound like a record broken, but these strong dividend payouts are one of the main reasons Raytheon has outperformed the S&P 500 over the past few decades (a theme here?). In fact, of the three, Raytheon Technologies has performed the best over the past 25 years.
The aerospace and defense industry is a prime example of what regular dividend payments can do for long-term performance. None of these three companies are growing as fast, but with stable earnings and rising dividends (for the most part), shareholders have been able to outperform the S&P 500 over the long term.
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