A detailed quantitative analysis by General Dynamics (GD) is linked here. Below are some highlights from the analysis linked above:
Company description: General Dynamics is the fourth largest military contractor in the world and one of the world’s largest manufacturers of business aircraft.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
GD trades at a discount of only 3.) above. Since the material book value of GD is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 48.8% on the calculated fair value of $ 110.72. GD did not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
In this section, GD earned two stars for 1.) and 3.) above. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. GD received a star for an acceptable score on at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1979 and has increased its dividend payments for 31 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA (20-year government bond). There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 105 is below the $ 500 target I’m looking for a stock that has increased dividends for as long as GD has done so. If GD increases its dividend to 1.9% per year, it will take 2 years to reach an MMA at an estimated 20-year average rate of 2.74%. GD received a check for the Years To> MMA key metric because its 2 years are below the 5 year target.
Peers: The company’s peer group includes: The Boeing Co. (BA) with a yield of 0.0%, Lockheed Martin Corporation (LMT) with a yield of 3.0% and Textron Inc. (TXT) with a yield of 0.2%.
Conclusion: GD did not deserve any stars in the Fair Value category, earned two stars in the Dividend Analytical Data category, and did not deserve two stars in the Dividend Income vs. MMA category. This means that GD is quantitatively referred to as 2 star weak Camp.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to drop to $ 115.80 before GD’s NPV MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 31 years of consecutive dividend increases. At that price, the stock would generate a return of 3.8%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the target MMA differential of $ 500 NPV. The calculated rate is 5.5%. This dividend growth rate is higher than the 1.9% used in this analysis, so there is no margin of safety. GD has one Risk assessment of 1.75, which it classifies as a medium risk stock.
With its diversified offering, GD is in one of the best positions to weather cuts in defense spending. The company’s aerospace business remains significantly behind in large cabin aircraft and is set to remain strong for the next several years.
The company has a pristine balance sheet with low free cash flow payouts and indebtedness to total capital. GD keeps its returns competitive through annual dividend increases. GD is currently trading above its calculated fair value price of $ 110.72. This is a solid company and I will continue to look for opportunities to expand my position.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I’ve been in GD (3.7% of my dividend growth portfolio) for a long time.
On the subject of matching items:
– Analysis of Emerson Electric Co. (EMR) dividend stocks