Thursday, March 6, 2014

General Dynamics (GD) 2014 Review

General Dynamics is a leading defense contractor supplying products and technology to marine systems, combat systems, information systems and aerospace (basically submarines, tanks, aircraft and command and control systems). The company has grown earnings and dividends 11% and 13% respectively over the last 10 years and has earned a consistently high 17-18% return on equity.   GD should be able to continue to match that record because of:

(1) growth in commercial aerospace division,

(2) acquisitions,

(3) an aggressive cost reduction program,

(4) share repurchases.

Negatives:

(1)    a large percentage of its sales are dependent on government spending both in the US and Europe,

(2)    its backlog has declined recently.

GD has a debt to equity ratio of approximately 24%, is rated A++ by Value Line and its stock provides a yield of 2.5%.

    Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio        Since 2004

GD            2.5%         6%                32%              10
Ind Ave     1.8             9*                26               NA 

                Debt/                       EPS Down       Net        Value Line
                Equity         ROE      Since 2004      Margin       Rating

GD            24%           18%           1                 8%           A++
Ind Ave     40               16            NA               8             NA

*many companies in GD’s industry don’t pay a dividend

     Chart

            Note: GD stock made good initial progress off its March 2009 low, quickly surpassing the downtrend off its September 2008 high (straight red line) and the November 2008 trading high (green line).  It then traded in a range for approximately three years before resuming a sharp uptrend.  Long term, it is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  Short term, it is in an uptrend (brown line).  The wiggly red line is the 50 day moving average.  The Dividend Growth Portfolio owns a 75% position in GD.  The upper boundary of its Buy Value Range is $58; the lower boundary of its Sell Half Range is $138.

    

3/14

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