Stock beats index returns
In this part of the series, we’ll take a look at General Dynamics’ (GD) investor returns.
General Dynamics’ share saw healthy growth in the past year. It beat the index returns comfortably. During the past year, the stock generated about 40% returns. The index (SPY) had about 20% returns. This was due to the strong growth in backlogs and orders during the second half of the year in the Combat Systems segment. It was also due to the launch of two new aircraft in the Aerospace segment.
The growth was also fueled by various contracts the company won in the last quarter. The contracts were mainly from the US government and armed forces.
For investors who have invested their money in General Dynamics for the past decade, the company generated double the index returns at about 150%. The company’s stock suffered during the recession. It also suffered after the recession when the government implemented military budget cuts. However, the company successfully shifted its business mix. Now, it focuses on international markets and other segments.
However, the stock has a very high price-to-earnings, or PE, ratio of about 19.92—compared to other companies in the industry—Lockheed Martin (LMT) at 19.4, Northrop Grumman (NOC) at 16.8, and Raytheon (RTN) at 15.3. This makes it a pricey option for new investors.
Dividend payout and repurchase program
General Dynamics has a healthy history of dividend payout for its investors. Its dividend payout grows steadily every year. At the end of 2014, the company paid dividends of $2.64 per share. Last year, the company wasn’t able to return as much cash to its shareholders—compared to other companies in the industry—due to pension issues. However, during 2014, the company spent $4.2 billion on shareholder-friendly activities. General Dynamics spent $3.4 billion on share repurchases.
For 2015, the company announced that it would spend all of its free cash flow for dividends and share repurchases.