2021 Week 3: General Dynamics (NYSE: GD)

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The capital allocation for the week of 01/17/2021 to 01/23/2021 will be used to establish a position in General Dynamics (NYSE: GD).

GD – Company profile

General Dynamics (GD) is an aerospace and defense corporation. It operates in five segments: Aerospace, Combat Systems, Information Technology, Mission Systems, and Marine Systems. And as of 2019, the company was the fifth-largest defense contractor in the United States. Gulfstream jets, Abrams tanks, Stryker armored vehicles, and Knifefish unmanned undersea vehicles are among GD’s products. Official Site | Wikipedia

Dividend Streak29 years
Payout Ratio39.89%
Minimal Entry Criteria Scorecard


Does GD have the financial means to sustain and raise its dividend going forward?

Over the last decade, GD has seen increases in both its revenue and net income. A big contributor to revenue growth in recent years has been the acquisition of CSRA, an IT services company, in April 2018.

EPS have closely tracked the trends exhibited by net income. Even though EPS has seen some fluctuations over the years, GD has been able to consistently increase its yearly dividend while also maintaining a payout ratio of between 24% and 34% over the last decade. (source GuruFocus)

GD is experiencing some headwinds in 2020. Revenue for the first 3 quarters of 2020 was about $1 billion lower than the same period a year ago ($ 27.444 billion vs. $ 28.577 billion). Of the business segments GD operates–aerospace, information technology and mission systems saw declines in revenue over the same period a year ago. Combat systems and marine systems on the other hand saw an increase. Of the 3 declining sectors aerospace saw the biggest decline year over year of about $ 1.2 billion. The performance of the aerospace segment throughout the year has been primarily impacted by the COVID-19 pandemic.

However, an orders backlog that stood at $ 81.5 billion at the end of Q3 2020, as well as a payout ratio of 40% should allow GD to weather the current economic disruptions without endangering the current dividend.


How does the current stock price and PE compare to historical values?

In the last 10 years GD has seen a PE ratio low of 7.84 (not counting the PE of 0 for 2012) in Dec 2011 and a high of 19.88 in Dec 2017. The current PE ratio of 13.85 is in line to where GD has traded over the last 2 years.

The current share price of $153.17 is 1.9% above the 50-day moving average and 5.3% above the 200-day moving average. The price is also close to the midpoint of the 52 week trading range.

The current price level suggests that GD shares are currently in line with recent valuation.


How does the current dividend yield for GD compare to historical yields?

Over the last decade, the yield has fluctuated between a low of 1.1% and a high of 3.81%. The median yield has been 2.1% (source GuruFocus). The current yield of 2.87% compares favorably to yield the company has traded at historically.


Why add GD to the FiveTwenty portfolio?

GD has delivered a streak of 29 consecutive years of dividend increases. Additionally, GD has sported a median 3-year average dividend growth rate of 10.8% per year over the past decade. (source GuruFocus) Furthermore, the median 3-year average EPS growth rate has been 10.2%. (source GuruFocus)

We believe GD will be able to continue its long history of dividend payout and growth. Additionally, with the current yield at 2.87% this seems to be an opportune time acquire GD shares at an above average yield.

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