Like a missile streaking into the sky, Raytheon's (NYSE:RTN) dividend has shot upward. Last week, the sturdy defense company increased its annual payout by 10%, from $2.20 per share to $2.42. That per-share amount equates to a quarterly rate of $0.605, or just over $0.05 higher than Raytheon's previous distribution, which was handed out in February. Let's take a closer look at whether the new rate is sustainable or liable to turn back toward the ground.

Long trajectory
Recent company history bodes well for investors as far as Raytheon's dividends are concerned. We're a few months shy of the 60th anniversary of the date the company started dispensing payouts to investors. We're also just about to hit the 50-year mark of the beginning of Raytheon's uninterrupted run of quarterly dividends.

This is a company that likes its landmarks at (more or less) 10-year intervals, apparently; in 2005, it began lifting its distribution once annually at the beginning of the year, and it hasn't looked back. So the recent rise was entirely in character, and no doubt fully expected by Raytheon watchers.

Good customers
With a defense budget as large as America's, combined with current tensions in hot spots such as Ukraine, it's not hard to make money betting on domestic defense companies. The U.S. government is a big customer chronically hungry for product, and Raytheon has delivered reliably for many decades. Its name consistently makes the list of Department of Defense contract winners.

And Raytheon isn't entirely dependent on the U.S. government for substantial bookings. In January, it inked a $1.2 billion deal to supply its famous Patriot missile defense system to the Persian Gulf nation of Oman, then followed with a $655 million Patriot order from Kuwait in February.

A constant flow of contracts makes for a very stable business. Over the past five fiscal years, Raytheon has managed to keep its annual top line between $23.7 billion and $25.2 billion. Profitability has crept upward since 2010 on the back of reductions in costs of goods sold in that stretch of time. 

A rising tide
The downside of this success is a sharply appreciated share price. Defense industry stocks have been on a tear over the past 12 months -- Raytheon's is at nearly double the level it was a year ago, as are shares of rival Northrop Grumman (NYSE:NOC). The same could be said for Lockheed Martin (NYSE:LMT) and the more diversified Boeing (NYSE:BA), even with recent stock price pullbacks.

A soaring share price, of course, drives down dividend yields. Boosting the distribution helps to lift that percentage a bit, and Raytheon is doing a good job of keeping up. At the moment its yield is 2.5%, which is in the neighborhood of fellow serial dividend raisers Lockheed Martin (3.3%), Boeing (2.3%), and Northrop Grumman (2.4%).

Company Dividend Yield Payout Ratio Three-Year Revenue Growth
Raytheon 2.5% 41% (4.6)%
Northrop Grumman 2.4% 29% (6.6)%
Lockheed Martin 3.3% 52% (2.5)%
Boeing 2.3% 49% 26.0%

Sources: Yahoo! Finance, The Wall Street Journal 

However, let's look more closely at each stock's payout ratio (the percentage of earnings it devotes to dividends) next to its annual revenue growth across the last four years. Every firm but Boeing has a significant payout ratio while showing top line declines over that three-year span. And although Raytheon's numbers are more modest than those of Lockheed Martin, for example, the latter firm's revenue decline hasn't been as pronounced. 

So although Raytheon seems determined -- and perhaps feels obligated -- to continue the tradition of its dividend raises while keeping those yields more or less in line with its peers, investors should keep an eye on these numbers. The combination of a meaty payout ratio and drooping revenues is unsustainable in the long run; if it continues for too long, there won't be enough money to hand out to shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.