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Northrop Grumman (NOC) Approves 10% Increase in Dividend

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Northrop Grumman Corporation (NOC - Free Report) announced that its board of directors has approved a 10% hike in its quarterly common stock dividend. As a result, the annualized payout increased to $5.28 per share from the prior level of $4.80.

The new quarterly dividend of $1.32 per share is up by 12 cents from the earlier quarterly dividend. The raised dividend will be paid on Jun 19, 2019, to its shareholders of record at the close of business on Jun 3.

In fact, the board of directors of Northrop Grumman has been clearing annual dividend hikes for more than a decade now. We note that yearly dividend hikes are becoming a regular event for this defense major. The current dividend revision marked the 17th consecutive annual dividend raise by the company.

Post the dividend hike, Northrop Grumman’s annualized dividend yield becomes1.79% compared with the industry’s average of 0.97%. This rise in distributable income vouches for the company’s strong balance sheet and a steady cash flow position, which provides it with financial flexibility and a cushion for incremental dividend.

Can Northrop Sustain Dividend Hikes?

Positive synergies from the integration of Orbital ATK, which Northrop Grumman acquired last year,have been driving the company’s operational performance. The consolidation, as per expectation, has been accretive to Northrop Grumman’s earnings and free cash flow in 2018. Indeed, the company’s free cash flow witnessed a solid annual surge of 53% last year, while its bottom line improved 52%.This, in turn, must have encouraged the company to reward its shareholders with the latest dividend hike.

Northrop Grumman is committed to deliver higher returns to its shareholders through increased dividend payouts and efficient share repurchase strategy. A constant in flow of contracts should enable it to maintain this strategy. In fact, the company can be anticipated to remain on solid growth trajectory supported by first-quarter 2019’s net awards worth $12.3 billion.

As Northrop Grumman continues to expect free cash flow in the $2.6-$3 billion band during 2019, we believe that the company must successfully meet its capital deployment commitments based on its strong cash flow and organic growth propects.

Dividend Hikes in the Same Space

Northrop Grumman is not the only company to reward its shareholders with increased dividend. There are also other players in the U.S. defense space to add shareholder value.

For instance, General Dynamic Corporation (GD - Free Report) announced a quarterly dividend of $1.02 per share in March 2019, registering a raise of 9.7% from the prior dividend payout.

The Boeing Company (BA - Free Report) also approved a quarterly dividend of $2.005 per share in December 2018, delivering a 20% hike compared with the dividend paid in the prior quarter.

Price Performance

Shares of Northrop Grumman have gained 8.5% in the past six months, outperforming the industry’s 3.4% growth.

Zacks Rank

Northrop Grumman has a Zacks Rank #2 (Buy). A similar-ranked player in the same industry is Lockheed Martin Corp. (LMT - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed Martin delivered average positive earnings surprise of 17.35% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 4.1% to $20.28 over the past 90 days.

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