Should You Consider Defense Dividend Stocks?

Defense StocksDo you embrace defense dividend stocks as a long term strategy? or do you ignore them due to their ties to government contracts? It’s a question many investors ask themselves when a defense dividend stocks surfaces in their research. I know it’s a question I have asked myself. Do you want a dependency on the US Department of Defense spending or not?

Defense dividend stocks tend to have contracts tied with government spending by they all have a different level of contract dependence and that can be one of the factors you use in choosing a defense dividend stocks. As a summary, you can find the percentage of revenue generated from the US Government for the following companies:

  • Lockheed Martin Corporation = 70%
  • General Dynamic = 61%
  • Northrop Grumman Corporation = 85%

The Department of Defense is definitely a major customer as you can see and you can find the list of top 100 contractors with the US Government to understand your general exposure to the government.

Please note; while each of the stocks listed have a minimum of 10 years of dividend growth, the review of the companies below does not highlight any preferences or outlook for investment purposes. The intention is to highlight the businesses that operate in the defense and aerospace industry with respect to pure play defense dividend stocks to understand what you may invest in.

However, to answer if you should consider defense dividend stocks, I believe they should seriously be considered. You just need to decide on your exposure and understand if you are simply locked in with the Department of Defense or general contracts with the US Government.

Lockheed Martin Corporation

LMT - Lockheed Martin CorporationLockheed Martin Corporation is a leading global security and aerospace company in the world. It provides defense, civil and commercial applications to both U.S. and international customers. Lockheed Martin operates through four business segments: Aeronautics (40% of 2018 net sales), Missiles and Fire Control (16%), Rotary and Mission Systems (26%) and Space (18%). The company provides critical products and services related to defense and homeland security and thus plays an important role in bolstering national security. The U.S. government is Lockheed Martin’s biggest customer accounting for 70% of its 2018 revenue. Nearly 28% of revenues came from international customers (in 2018) and 2% from U.S. commercial and others. Lockheed Martin is also focusing on expanding its international presence. The company has contracts spanning one or more base years and multiple option years with the U.S. government. It is almost impossible for newcomers to replace Lockheed Martin, given its extensive product portfolio, large scale and deep ties with governments worldwide.

Investment Data

General Dynamics Corporation

GD - General Dynamics CorporationGeneral Dynamics is a leading global aerospace and defense company providing a wide range of products and services in business aviation; combat vehicles, weapons systems and munitions; IT services and C4ISR solutions; and shipbuilding. General Dynamics is a global leader in combat systems and is at the forefront of the business-jet industry. The company carries out its operations through four business groups: Aerospace (23% of 2Q19 revenue), Combat Systems (17%), Information Technology (23%), Mission Systems (13%) and Marine Systems (24%). The U.S. Department of Defense (DoD) is General Dynamics’ primary customer accounting for 65% of the company’s total revenues. U.S. commercial customers constitute ~14% of total revenues followed by non-U.S. commercial and government customers. General Dynamics is the proud owner of some of the world's most technologically advanced business-jet aircraft, wheeled combat vehicles, command and control systems, and nuclear submarines. Most of General Dynamics businesses are leading global providers of mission-critical products and systems. Gulfstream and Jet Aviation, two of General Dynamics businesses, are global leaders in business aviation services and have powerful brand recognition.

Investment Data

Northrop Grumman Corporation

NOC - Northrop GrummanNorthrop Grumman is a leading global security company providing innovative systems, products, and solutions to government and commercial customers worldwide. It is a premier provider of military aircraft, autonomous and space systems, and innovative defense and security solutions. Northrop Grumman is one of the Big Five defense contractors in the world. About 85% of Northrop’s total sales are to the US government and the majority of the contracts are long-term in nature. The company also conducts business with other foreign governments and commercial customers in 25 countries. Aerospace systems (42% of Q2 2018 operating income), Mission systems (42%), Technology Services (11%) and the newly added Innovation systems (5%) are Northrop’s reportable segments. The company manufactures products and solutions for applications ranging from under the sea to space and cyberspace. Its broad product portfolio caters to areas like autonomous systems, C4ISR, and logistics & modernization serving customers worldwide. With a rich heritage of eight decades, Northrop Grumman has developed a deep understanding of its core areas of operations.

Investment Data

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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