EC Dividend Aristocrats In Focus: General Dynamics

It’s a new year and that means there is a new list of inductees to the Dividend Aristocrats index – a group of companies with 25+ years of consecutive dividend increases.

One of the new inductees is General Dynamics, an aerospace and defense company with strong ties to the U.S. government.

Historically, General Dynamics has generated strong total returns, particularly in the past four years. The image below shows the performance of General Dynamics against the S&P 500 over the past decade.

GD Growth of $1 Investment Over 10 Years

Source: Yahoo! Finance

While General Dynamics may be one of the newest Dividend Aristocrats, it is still an attractive investment. General Dynamics is the only company in the following peer group to be a Dividend Aristocrat:

Boeing (BA)

United Technologies (UTX)

Lockheed Martin (LMT)

General Dynamics (GD)

Being a Dividend Aristocrat matters. The index has meaningfully outperformed the broader stock market over long periods of time, as the image below shows.

Dividend Aristocrats Performance and Risk February 2017

Source: S&P

This post will analyze the investment prospects of General Dynamics in detail.

Business Overview

General Dynamics is an aerospace and defense company with headquarters in Fairfax County, Virginia.

The company can trace its roots back to the 1800s. The first iteration of General Dynamics was called the Holland Torpedo Boat Company and was responsible for producing some of the U.S. Navy’s first submarines.

Fast forward a few decades, and the company was reorganized under the current name in 1952. After decades of operational churn, the company now operates under four main business umbrellas:

Aerospace (27% of 2016 revenue)

Combat Systems (18% of 2016 revenue)

Information Systems and Technology (29% of 2016 revenue)

Marine Systems (26% of 2016 revenue)

General Dynamics’ revenue by operating segment for fiscal 2015 and 2016 is broken down in the following diagram.

General Dynamics Revenue by Segment

Source: General Dynamics Quarterly Report

Growth Prospects & Competitive Advantage

General Dynamics has a huge backlog of future work that will ensure their growth for the foreseeable future. The total potential contract value of the company’s backlog is nearly $85 billion (which is 2.7 times 2016’s revenues) and the backlog is well-diversified across the company’s operating segments.