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.
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.
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.
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.
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.
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.