Please ensure Javascript is enabled for purposes of website accessibility

Forget General Dynamics Corporation: Here Are 2 Better Dividend Stocks

By Reuben Gregg Brewer – Feb 3, 2016 at 1:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

General Dynamics is a great company, but if you're looking at it, there are some other dividend payers you should look at, too

General Dynamics (GD -2.71%) boasts some impressive dividend stats. But that doesn't mean it's the best option for income investors looking to invest in the aerospace and military spaces. If you're looking at General Dynamics, here are two more dividend payers you might want to examine right now.

Street cred
It's hard to top General Dynamics' dividend credentials. For example, it's increased its disbursement annually for 24 years. And the annualized dividend growth rate is an impressive 13%. That's well above the historical inflation level, so income investors are basically getting annual raises.

General Dynamics logo. Source: General Dynamics.

But there are some problematic issues here, too. For example, the yield has recently been in the 2.2% range. That's lower than what you could get by simply buying an S&P 500 Index ETF. The stock is also looking a little pricey compared with its recent history. It's trailing price to earnings ratio is around 8% above its five-year average. The price-to-book ratio is about 45% above its trailing five-year average. And the trailing price-to-cash flow ratio is about 60% above its five-year average. The dividend yield, meanwhile, is below the five-year average of 2.3%. In other words, General Dynamics looks a little expensive right now.

So what should you do? I suggest taking a look at Boeing (BA -5.37%) and United Technologies (RTX -1.70%).

Similar, but higher, yields
Clearly, these three companies are different in many ways. General Dynamics is in the aerospace and military spaces. Boeing falls into both of those but has a heavier focus on the commercial aerospace side of things. United Technologies, meanwhile, is far more diversified than either General Dynamics or Boeing, making things such as elevators and climate-control equipment. However, about half of its business is tied to aerospace. So these three companies aren't the same, but they rhyme well enough that you could probably switch one for the others.

Boeing logo. Source: Boeing.

And both Boeing and United Technologies yield more than General Dynamics. Boeing has the highest yield at around 3.7%, but United Technologies' 2.9% yield is still notably higher than what you can get from General Dynamics. And both are higher than the 2.8% or so yield available from an S&P Index ETF.

Stacking them up to some other dividend metrics is interesting, too. For example, United Technologies has a 22-year history of annual dividend increases. And while Boeing's streak is only at five years, that's because it hit the pause button after the 2007-to-2009 recession. It had been increasing regularly before that point.

Top honors on dividend growth, meanwhile, go to Boeing, with an annualized rate over the past decade of around 14%. United Technologies was in a virtual tie with General Dynamics at about 13%. This one is kind of mincing words, but it shows that despite the pause that Boeing took during a difficult stretch, investors have still been well rewarded overall on the dividend growth front.

United Technologies logo. Source: United Technologies.

That's a start ...
But there's more to this suggestion than just yield. Boeing is trading at around 8 times its trailing cash flow compared with its five-year average of 11.5. And its trailing price-to-earnings ratio is about 7% below its five-year average. That said, the airplane maker's price-to-book ratio is about 18% above its five-year average. But with so many other metrics in its favor, Boeing is still a worthy alternative to General Dynamics, even though it's seeing a slowdown in some airplane orders.

United Technologies' trailing price-to-earnings ratio, meanwhile, is about 17% below its five-year average. Its price-to-book value ratio is about 20% below the five-year average. And its trailing price-to-cash flow is about 12% below its five-year average. So it's pretty consistent across the board. United Technologies appears to be relatively cheap compared with recent history.

To be fair, United Technologies is likely to face the same global growth headwinds in 2016 that caused it to reduce its full-year 2015 earnings guidance last year. So investors focused on quarter-to-quarter earnings variations have a reason to be concerned. But the conglomerate has been reworking its business to boost long-term growth prospects, including the sale of its helicopter business. And from a big picture standpoint it remains a well-positioned business with industry leading brands and products.

Both Boeing and United Technologies offer yields that are above their five-year averages, by the way.

Toss General Dynamics!
Does any of this mean you should simply forget about General Dynamics as an investment? No. There are trade-offs in any investment you make, and you might decide that General Dynamics is worth the premium price it appears to have today. However, don't stop your research process there. Boeing and United Technologies are similar companies with what appear to be more compelling value characteristics and higher yields. In the end, you might decide that General Dynamics is a great company, but that Boeing and United Technologies are just a better option right now.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$221.90 (-2.71%) $-6.19
The Boeing Company Stock Quote
The Boeing Company
BA
$131.26 (-5.37%) $-7.45
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$82.03 (-1.70%) $-1.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.