General Dynamics Hikes Dividend (BA) (GD)

Zacks

General Dynamics (GD) has increased its quarterly dividend by 8.5%, thus raising its annualized dividend to $2.04 per share from the previous payout of $1.88 per share.

General Dynamics declared that it will pay a quarterly dividend of 51 cents per share to its shareholders compared with 47 cents paid in the year-ago period. The revised quarterly dividend will be paid on May 11, 2012, to shareholders of record as of April 13, 2012.

The management of the company has consistently rewarded shareholders by paying a substantial portion of the free cash flow through incremental dividends. Last year the company also increased its quarterly dividend in March 2011 from 42 cents to 47 cents per share.

General Dynamics’ new annualized dividend rate reflects a current yield of 2.8%. This is higher than its peer The Boeing Company (BA) with a current dividend yield of 2.37%.

General Dynamics utilizes cash flows generated from operations to fund capital expenditure, acquisitions, repayment of debt, payment of dividends, repurchase of common stocks and to fund other obligations. General Dynamics is well positioned with a strong balance sheet compared to its peers.

The company’s 2011 free operating cash flow of $2.8 billion is encouraging in terms of investments in research and technological development. In fiscal 2011, the company repurchased 20 million shares compared with 18.9 million shares in 2010.

General Dynamics engages in the development of mission-critical information systems and technologies (IS&T); land and expeditionary combat vehicles, armaments and munitions, shipbuilding and marine systems, and business aviation.

We expect that an increase in potential contract value, revival plans for business jet market in Gulf-stream, the Warfighter Information Network Tactical (WIN-T) program and Joint Tactical Radio System (JTRS) in the IS&T division will act as positive growth catalysts for General Dynamics. The growth will also include higher-than-expected volumes in ship programs DDG-51, Virginia class submarines, Mobile Landing Platform programs, and US military vehicle business such as Stryker combat vehicles and Abrams tanks.

However, at the same time, we are cautious about a dip in the company’s total backlog, impending cutbacks in the US defense budget and the long-lasting Euro crisis. General Dynamics currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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