When China Threatens, Filipinos Go Shopping for U.S. Warships

One little, two little... eight little Filipino frigates could soon sail into disputed waters.

Jan 17, 2014 at 11:20AM

Uh-oh. It seems that the Japanese (and Taiwanese and Koreans) aren't the only folks getting nervous about the Chinese military buildup in the Pacific Ocean.

On Thursday, DefenseNews.com reported that over in the Philippines, continued incursions into territorial fishing waters have the local navy shopping for used U.S. warships to beef up its fleet. Over the past two years, the archipelagic nation has bought two refurbished American "frigates" for about $10 million apiece. Actually, the vessels, formerly named USCGC Hamilton and USCGC Dallas, and now BRP Gregorio del Pilar  and BRP Ramon Alcaraz, respectively, were classified as Coast Guard cutters when in U.S. possession.

Alcarez

The Philippines' new flagship, the BRP Ramon Alcaraz. Source: Wikimedia Commons.

The threat
In recent months, Chinese naval vessels have been sailing into disputed waters off the Philippine coast, an area that Manila calls the West Philippine Sea but that China insists is really the South China Sea. Already, the increasing numbers of Chinese warships swarming the area have frightened off not just Philippine civilian fishing boats. The overwhelming force being deployed forced the Philippine Navy to back down and cede control of a fishing area known as the Scarborough Shoal to the Chinese.

Scarborough Shoal lies right off the coast of Luzon -- quite literally in the Philippines' backyard (if yards were wet). So you can see why the Filipinos are nervous.

Safety in numbers
At just 3,250 tons displacement and armed with only one cannon apiece (plus a mix of mostly defensive "chain" guns and machine guns), the new Filipino frigates aren't particularly frightening warships. But they are currently the biggest warships in the Philippine fleet. Plus, there's safety in numbers, and the more of them they get, the safer Filipinos will feel.

Nsc Cutter

U.S. National Security Cutter Bertholf (WMSL-750). Source: Wikimedia Commons.

The Philippine Navy now intends to buy two more such frigates... and then two more after that... and then two more after that. Jumping at Secretary of State John Kerry's offer last December to provide the Philippines with $40 million in military assistance, the Philippine Navy says it has bid to buy two more U.S. frigates for its fleet within the next two years, and intends to round out its purchases at about eight vessels (including the two already bought). These will then join the nation's three corvettes, a handful of even smaller warships, in trying to fend off the Chinese threat.

All this spending should be good news for American shipbuilder Huntington Ingalls (NYSE:HII). Huntington built the "frigates" in question, and would be the logical company to tap to refurbish additional vessels prior to their transfer to the Philippines. Huntington is also the company that is building the new Legend-class National Security Cutters that are replacing them at the U.S. Coast Guard.

Result: Selling more frigates to the Philippines won't just make the Filipinos feel more secure. It should make a lot of Huntington Ingalls shareholders pretty happy as well.

Oh, and one more thing
Did we mention that Huntington pays its shareholders a tidy 0.8% dividend yield? Try getting your bank to pay you 0.8% interest these days! While they don't garner the notability of high-flying tech stocks, dividend-paying stocks like Huntington Ingalls are also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

 

Fool contributor Rich Smith has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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