As teased in my previous “Fool Revisited” piece, today’s first entry is another sector article from the “aerospace and defense” industry. The premise, as indicated by the title, was identifying stocks in the sector near their 52-week lows that paid large dividends, or at least dividends large for the sector. Though I charted up seven companies – the max allowed under Fool’s “tickering” rules at the time, I identified three of the seven and told a bit more of a story about them.
NOTE: I currently work for the Air Force and the three companies profiled here are often prime contractors for the Air Force on various weapon systems, but I have no inside information about upcoming contracts that may influence the performance of these stocks going forward.
Based on my experience in Iraq – which I used anecdotally when discussing the three companies in the original article – and my ten years in the Army Reserve, I thought that maybe this would be a sector that I would spend some time writing about as a financial writer. However, that never came to be for a couple of reasons: first, nobody particularly cared about the stocks from this industry outside of big news stories when new contracts were awarded or Boeing had a massive order for planes. Second, there was already someone at the Fool – in the previous cohort of the Writer Development Program – that had decided to “focus” on the industry. No harm, no foul.
Nevertheless, I decided to share this article with the world, though I doubt it had any real impact on its performance:
All three of the companies I “expanded” on have crushed the S&P 500 since I wrote the article, though they aren’t nearly as robust in the dividend department as they were 6+ years ago (gaining over 500% like Lockheed Martin (NYSE: LMT) kind of has that effect.) Like United Technologies before them, all three companies have seen their dividend yields shrink (due to stock price appreciation) despite steadily increasing dividends per share over the past 6+ years. Lockheed has doubled its quarterly dividend to $2/share since the article was published, and L-3 Communications (NYSE: LLL) and Raytheon (NYSE: RTN) have both seen dividend per share growth grow by more than 74%.
Using the compound annual growth rate (CAGR) and total growth, an investor would have loved investing in any of these three companies from article publication (October 2, 2011) through January 26, 2018, and it’s not really close:
|Stock||Start Price||End Price||CAGR||Total Growth||Value of $10,000|
Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits
These companies are all very reliant on spending by the government, especially within the Department of Defense. There are A LOT of aging weapon systems that are in dramatic need of replacement, and a lot of that is starting to happen. Whether it’s replacing a 50 year-old missile in the ground, or a nearly 70 year-old bomber, force modernization is starting to happen, and the defense industry will benefit. However, it is still important for these companies to find revenue from other places as well, which can often be the difference between surviving and simply being an acquisition target for the larger, more successful companies. But if you like shiny new jets, trucks, missiles, and everything else, it is a fun industry to follow.
Until next time…
Disclaimer: I do not personally own shares of the companies mentioned here, and I have no plans to purchase shares of any company mentioned within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.