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Why General Dynamics, Textron, and Northrop Grumman Shares Are All Up Today

By Rich Smith - Mar 26, 2020 at 12:52PM

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The COVID-19 relief bill should benefit defense stocks.

What happened

On Wednesday night, the U.S. Senate passed its Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), and by Friday, this $2 trillion stimulus package could sail through the House of Representatives as well. Then, in the final step, President Trump has promised to sign the bill into law immediately.  

Defense stocks General Dynamics (GD 0.03%), Textron (TXT -0.23%), and Northrop Grumman (NOC -0.61%) are soaring in response, up 9%, 9.6%, and 10.7%, respectively, as of 12:30 p.m. EDT today. 

Three colorful arrows racing straight up on a black background

Image source: Getty Images.

So what

Large portions of the stimulus bill are targeted directly at shoring up operations at top industrial stocks and defense stocks -- categories that encompass General Dynamics, Textron, and Northrop.

The headline figure in the CARES Act is $500 billion in loans and loan guarantees for large companies affected by COVID-19, fully a quarter of the total assistance contained in the package.  

And the CARES Act allocates $17 billion in loans and loan guarantees to businesses crucial to maintaining national security.

Now what

Companies accepting the loans and loan guarantees must commit to not pay dividends or make other capital distributions (like stock buybacks) to their shareholders until 12 months after the date the loan or loan guarantee is no longer outstanding. 

Assuming these companies avail themselves of the aid, therefore, it could be a good long while before investors can expect to receive any dividend income from them. That probably doesn't seem like such a big deal to investors in Textron, which only has a 0.3% dividend yield. But for shareholders in Northrop Grumman (with an 1.8% yield) or General Dynamics (3.6% yield), it could be a much more significant factor in your decision to buy or sell.

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Stocks Mentioned

General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$219.28 (0.03%) $0.06
Textron Inc. Stock Quote
Textron Inc.
TXT
$59.91 (-0.23%) $0.14
Northrop Grumman Corporation Stock Quote
Northrop Grumman Corporation
NOC
$461.81 (-0.61%) $-2.86

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