Huntington Ingalls Industries (HII 1.29%) isn't one of the top five biggest defense companies operating, but it is making a name for itself in the defense arena. It is getting that recognition, in part, by being the United States' only supplier of aircraft carriers and, in part, by having one of the nation's two shipyards capable of producing nuclear submarines.
With more investors worried about recession and about market volatility, now may be a good time to consider this defense stock because it could serve as a defensive measure in your portfolio with an eye toward steady growth and increasing dividends. While the bears seem out in full force in the markets at large, the United States still has a naval fleet to maintain and the development of new, more advanced defensive vessels never ends. That keeps naval vessel specialist Huntington Ingalls in the spotlight.
Keeping it all on the same ship
Huntington Ingalls benefits greatly from a three-sided approach that incorporates defense development, construction, and logistics. The Newport News, Virginia, operations develop and build top nuclear carriers and submarines, while the Ingalls division in Pascagoula, Mississippi, handles assault ships, surface vehicles, and non-nuclear vessels. The third segment, Technical Solutions, is spread out across multiple locations in 46 states and 50 countries and handles everything from logistics and fleet support to oil and gas deployment along with mission tracking and evaluation.
Having all three segments under one corporate umbrella gives Huntington Ingalls an advantage over many of its competitors that often have to outsource operations or logistics. It also provides an advantage when government contracts require high security because they deal with sensitive information.
Huntington Ingalls stock is handily beating the S&P 500 in 2022 with a gain of nearly 11% since the start of the year, compared to the index's 17.4% drop over the same timeframe. That gain also tops defense stocks like General Dynamics (3% gain) and Lockheed Martin (9.9% gain) since the start of the year.
Huntington Ingalls reported $2.6 billion in revenue in the first quarter of fiscal 2022, up 13.1% year over year. New contract awards in Q1 were approximately $2 billion, bringing its total
contract backlog to approximately $47.9 billion as of March 31. That suggests steady revenue for the next several years.
Huntington Ingalls also pays out a regular dividend of $4.72 per share annually which generates a 2.3% yield. That exceeds the S&P 500 average yield of 1.6%. It's paid out the quarterly dividend consistently since 2012 and the payout ratio is about 35%, leaving plenty of room for potential growth.
Continued growth and success
Despite its market leadership and minimal competition, the company isn't taking things easy. The Newport News division signed a new labor deal through February 2027 with United Steelworkers, and Vice President of Human Resources and Administrations Susan Jacobs noted "This offer maintains our competitiveness in the shipbuilding industry and our flexibility to respond to our Navy customer's needs."
The division also announced in May that it would hire another 5,000 workers at its shipyard, with staffing anticipated to grow by 21,000 in the next decade. The Ingalls shipyard likewise plans to expand to include another 2,000 workers across more than 500 available job types.
Huntington Ingalls continues to win national defense contracts, bolstering its future operations, with a May award of up to $249 million for tactical and training systems from the Naval Air Warfare Center. In April, the company launched the Virginia-class submarine New Jersey from Newport News along with the newly completed Arleigh Burke-class guided-missile destroyer Frank E. Petersen Jr. from its Ingalls division. These ongoing successful developments and deployments showcase the company's strength.
Challenges on the horizon
Chinese naval development is also on the rise, as indicated by the deployment of its first Chinese-built aircraft carrier in June. That has some wondering if the civilian leadership of the U.S. Navy may find itself looking more deeply into construction and naval affairs. Huntington Ingalls is looking into whether it has the facilities and ability to meet the needs of any potential conflict in the Pacific as well as help maintain and upgrade the existing U.S. fleet.
It's possible that naval warfare could someday give way to long-range ground missiles or even space-based ballistics in the future, but that challenge seems to remain a long way off. Huntington Ingalls stays on top of the latest developments on land and sea, and the company struck a deal with the U.S. Navy in June on the development and construction of the next major amphibious dock landing ship, one of many ongoing future-tech projects that include artificial intelligence-related services and autonomous vehicles.
Signed, sealed, and delivered
Huntington Ingalls may well have the logistics and development teams in place for national defense in the ever-changing battlefields of the future. That diversity gives it an extra advantage in both a bear market and a potential recession, even with the overall strength that defense stocks often show in such conditions. The company's stock remains a slow but sure earner with rising dividends. It's reasonably priced for a value stock with a trailing-12-month price-to-earnings ratio of 15.5 which is just a bit higher than its five-year average of 14.6.
Huntington Ingalls Industries should merit a close look for Foolish investors seeking a stable stock in this time of economic volatility. Nonstop development and a lasting tradition of success make this an appealing defensive option likely to grow soundly over time.