What are we looking for?
Sustainable dividends from military contractors prepared for rapidly rising demand.
The screen
RTX Corp. RTX-N jumped to a new all-time high this week, spurred in part by strong demand for its Patriot missile defence systems – from both the U.S. military and international allies.
Still, RTX is just one of a number of defence industry stocks experiencing robust orders, fuelled by ongoing conflicts around the world, including Ukraine. Also generating demand are NATO member pledges to increase spending and advances in technology that threaten to make existing arsenals obsolete.
From a list of Canadian and U.S. dividend payers, our analysts at The Successful Investor identified leaders already tapping demand for defensive weaponry and support. Those contractors also stand to benefit from military spending in the long term – well past current crises. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- two points if it has raised the payment in the past five years
- one point for management’s commitment to dividends
- one point for operating in non-cyclical industries
- one point for limited exposure to foreign currency rates and freedom from political interference
- two points for a strong balance sheet, including manageable debt and adequate cash
- two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments
- one point for an industry leader
- one point for five years of continuous dividend payments
- two points for more than five
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; four to six points, average sustainability; and one to three points, below-average sustainability.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc., the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks.
Lockheed Martin Corp. LMT-N, headquartered in Maryland, is an industry giant that makes a range of advanced fighter planes, missiles and leading-edge electronics. Northrop Grumman Corp. NOC-N, headquartered in Virginia, offers an array of manned and unmanned airborne systems, as well as electronic warfare technology.
Meanwhile, General Dynamics Corp. GD-N, also based in Virginia, remains a leading military contractor in the U.S. and globally. Massachusetts-based RTX makes military aircraft engines. It also makes weapons, including Tomahawk cruise missiles.
Magellan Aerospace Corp. MAL-T, headquartered in Mississauga, Ont., makes products such as engine and structural components for military aircraft. It also makes the CRV7 rocket weapon system.
(Note: Chicago’s the Boeing Co. BA-N, maker of a range of fighter jets, guided weapons and more, has yet to reinstate its dividend, which was suspended in March, 2020.)
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.