Northrop Grumman Corporation (NOC - Free Report) recently announced that its board of directors has approved a 10% hike in its quarterly common stock dividend. As a result, the annualized payout has increased to $5.80 per share from the prior $5.28.
The new quarterly dividend of $1.45 per share is up by 13 cents from the earlier quarterly dividend of $1.32. The raised dividend will be paid on Jun 17, 2020, to shareholders of record at the close of business on Jun 1.
Dividend Hike: A Regular Trend
It is imperative to mention that the board of directors at 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 18th consecutive annual raise by the company.
Post the dividend hike, Northrop Grumman’s annualized dividend yield has become 1.81% compared with the industry’s average of 0.87%. 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 allows incremental dividend.
Can It Sustain Dividend Hikes?
Northrop Grumman has been committed to delivering higher returns to shareholders through increased dividend payouts and efficient share repurchase strategy.
A constant flow of contracts enable it to maintain this strategy, as contract wins boost the defense major’s balance sheet, which in turn allows it to maintain steady dividend hikes. Evidently Northrop Grumman’s cash and cash equivalents were $3.28 billion at the end of the first quarter of 2020, compared with$2.25 billion at the end of 2019. As a result, the company paid dividends worth $227 million in the first quarter of 2020, compared with $211 million in the year-ago quarter.
Considering its payout ratio of 0.25 as of Mar 31, 2020, which improved sequentially from 0.24 and was also the highest in the trailing four quarters, we are optimistic about the company’s ability it to maintain its solid capital deployment strategy. At a time when every entity is looking to preserve liquidity amid uncertainties emanating from the COVID-19 outbreak, a dividend hike from Northrop Grumman is reassuring for investors.
As Northrop Grumman continues to expect free cash flow in the $3.15-$3.45 billion band for 2020, we believe that the company will be able meet its capital deployment commitments on strong cash flow and organic growth prospects.
Dividend Hikes in the Same Space
Northrop Grumman is not the only company in the U.S. defense space to reward shareholders with a dividend hike.
For instance, in March 2020, General Dynamic Corporation (GD - Free Report) announced that its board of directors approved a 7.8% hike in its annual dividend to $4.40 per share.
In the same month, L3Harris Technologies (LHX - Free Report) announced that its board of directors has approved a cash dividend on its common stock of 85 cents per share, up 13.3% from the prior payout of 75 cents.
Shares of Northrop Grumman have gained 2.7% in the past 12 months, outperforming the industry’s 30.1% decline.
Zacks Rank& Key Pick
Northrop Grumman currently has a Zacks Rank #3(Hold). A better-ranked player in the same sector is Elbit Systems (ESLT - Free Report) , which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Elbit Systems delivered a positive earnings surprise of 11.26% in the last reported quarter. The Zacks Consensus Estimate for 2020 earnings pegged at $7.65, suggesting an annual improvement of 12.7%.
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