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3 Defense Stocks Offering Dividend Hikes Amid Market Volatility

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The U.S equity market has been going through quite an upheaval lately amid the prolonged Russia-Ukraine war and rising oil prices. Additionally, the COVID-induced supply chain issue resulted in high domestic inflation rates. In order to curb persistently high inflation rates, the Fed increased interest rates. All these factors collectively resulted in market volatility.

In this uncertain scenario, stocks offering a steady flow of returns to investors through dividends should find their place on investors’ watchlist. In this context, industry behemoths like General Dynamics (GD - Free Report) , Northrop Grumman (NOC - Free Report) and Raytheon Technologies (RTX - Free Report) are worth a mention as they have lately announced impressive dividend hikes.

Factors Supporting the Hikes

Rising geo-political tension provides a solid boost to defense stocks. The ongoing tiff between Russia and Ukraine has been a huge tailwind for defense stocks. This is because nations across the globe are fortifying their defense spending to strengthen their security. The United States of America is no exception. The U.S. fiscal 2023 Department of Defense budget request of $773 billion reflects an increase of 4.1% from the fiscal 2022 enacted amount.

Apart from the United States, Germany announced a $112 billion increase in its defense spending. Also, every NATO country has pledged to increase their defense budget to 2% of GDP. Additionally, Japan is likely to escalate its defense spending to more than 1% of the GDP.

Notably, this is likely to usher in huge contracts for defense bigwigs from the U.S government and other nations as well as the United States remains the largest exporter of military weaponries worldwide. This in turn offers stability in U.S. defense players’ earnings and encourages them to reward shareholders with solid dividend payouts.

Stocks in Focus

Here we discuss three defense stocks that have been consistently hiking dividends on the back of their financial strength.

Thanks to General Dynamics’ strong operational performance, it has been consistently rewarding its shareholders with dividend hikes since the last 25 years. In March 2022, GD’s board cleared a 5.9% increase in its quarterly dividend payout, taking the annualized payout to $5.04 per share compared with the prior level of $4.76.

General Dynamics’ free cash flow was $1.83 billion during the first quarter against a free cash outflow of $131 million in the prior-year period. This clearly reflects GD’s underlying financial strength and its ability to sustain the dividend hikes going forward.

Northrop Grummanis aided by a solid inflow of contracts from the Pentagon that have been helping the company in maintaining its 19-year-long streak of rewarding shareholders with dividend hikes. Impressively, in March 2022, NOC announced a 10% hike in its quarterly common stock dividend, thus taking the payout to $6.92 per share from the prior payout of $6.28.

Northrop Grumman expects to return at least 100% of its 2022 transaction-adjusted free cash flow to shareholders through dividends and share repurchases activity. NOC’s solid financial position is likely to assist it in offering lucrative dividend hikes to its shareholders, like the latest one.

Raytheon Technologies’ business operations benefit from both domestic and international programs, which aid the company to reward shareholders with a consistent dividend hike.  In April 2022, RTX increased its quarterly dividend payout by 7.8%.

Raytheon Technologies expects to generate free cash flow worth $6 billion in 2022, which should augment its dividend-paying strategy.


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Northrop Grumman Corporation (NOC) - free report >>

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Raytheon Technologies Corporation (RTX) - free report >>