Last update on 2024-06-27

General Dynamics (GD) - Dividend Analysis (Final Score: 7/8)

Discover General Dynamics' robust dividend performance, rated 7/8. Analyzing GD's dividend stability, growth rate, and earnings coverage. Ideal for investors.

Short Analysis - Dividend Score: 7

We're running General Dynamics (GD) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis aims to evaluate the performance and stability of General Dynamics' (GD) dividend policy using eight specific criteria. GD has a high dividend yield at 2.0102%, which is well above the industry average of 1.16%, making it attractive for income-focused investors. The average annual dividend growth rate above 5% and a substantially low payout ratio of 16.03% over 20 years signal financial health and sustainability. Dividends are well covered both by earnings (DPS/EPS ratio around 0.25 to 0.43) and cash flow indicating robust earnings and cash flow management. GD has also shown consistent and stable dividend payments over the last 20 years, making it reliable for long-term investors. The company has not missed a dividend payment in over 25 years, further indicating financial stability. Lastly, reliable stock repurchases over the past two decades complement the dividend policy and signal a strong commitment to shareholder value enhancement.

Insights for Value Investors Seeking Stable Income

General Dynamics (GD) shows an impressive dividend policy that is both stable and high-performing based on the given analysis criteria. With a history of over 25 years of dividend payments and solid financial health metrics, GD is recommended to investors looking for a reliable income source and long-term dividend growth. Its high dividend yield, steady growth rate, and prudent cash flow management make it a worthwhile consideration for dividend-focused portfolios. Overall, General Dynamics represents a promising prospect for sustained income and investment growth.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the dividend income an investor can expect from owning shares, expressed as a percentage of the current stock price. It is a critical metric because it gives a direct indication of the income-generating capability of an investment in the stock relative to its price.

General Dynamics (GD) currently has a dividend yield of 2.0102%, which is substantially higher than the industry average of 1.16%. This trend has shown fluctuations over the last 20 years but generally remains competitive within the industry. The higher yield is indicative of a more attractive income proposition for investors seeking dividends. A comparison with historical data shows that GD's yields have often outperformed the industry average, as seen during periods such as 2012 where GD reported a yield of 3.625% versus the industry’s 4.21%, and in 2008 when GD showed a yield of 2.3268% versus the industry’s 3.46%. This consistent outperformance makes GD an attractive option for dividend-focused investors. Therefore, this trend can be viewed positively, highlighting GD's strong dividend distribution policy.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for General Dynamics (GD) and why it is important to consider

The Dividend Growth Rate measures how much a company's dividend payments have increased over time. A Dividend Growth Rate higher than 5% generally indicates a company's ability to consistently increase dividend payments, signifying financial health and profitability.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio indicates the proportion of earnings a company pays to shareholders in the form of dividends. A payout ratio below 65% is generally considered sustainable.

For General Dynamics (GD), the average payout ratio over the past 20 years is 16.03%. This low payout ratio suggests that GD has been able to retain a significant portion of its earnings for reinvestment or to buffer against economic downturns. Despite the outlier in 2012 with a payout ratio of -267.11%, which may be attributed to extraordinary circumstances such as a one-time charge or adjusted accounting treatments, the overall trend shows a solid and sustainable dividend distribution strategy. Thus, the trend is highly favorable for long-term dividend security and potential growth.

Dividends Well Covered by Earnings?

Analyzing if dividends are well covered by earnings helps assess sustainability of dividends.

Examining General Dynamics (GD)'s earnings per share (EPS) and dividend per share (DPS) trends from 2003 to 2023 reveals some key insights about the company's dividend policy and its coverage by earnings. From the data, Dividends per Share as a proportion of EPS has generally increased over time, indicating stronger dividend payouts relative to earnings. For instance, in 2003, the DPS payout ratio was around 0.25, while this figure has gradually increased to approximately 0.43 in 2023. A coverage ratio below 1 indicates dividends are well covered by earnings, implying the company's earnings comfortably support its dividend payments. Ratios around or below 0.40 are generally seen as healthy, suggesting good earnings capacity to maintain and potentially grow dividends. The dip observed in 2012 with a negative EPS appears to be an anomaly which is crucial to note. Excluding that year, the trends reflect a solid capacity to cover dividends with earnings, illustrating prudent financial management. This uptrend in coverage ratio is positive, indicating that GD has consistently managed to maintain a healthy balance between rewarding shareholders and retaining earnings for reinvestment.

Dividends Well Covered by Cash Flow?

Dividends being well covered by cash flow indicates a healthy balance between free cash flow (FCF) generated and dividends paid. This shows the sustainability of dividend payments, implying the company is not over-leveraging or digging into reserves to pay dividends.

Reviewing General Dynamics' (GD) performance from 2003 to 2023: the ratio of dividend payouts relative to free cash flow (FCF) has fluctuated but remained in a generally comfortable range. Values like 0.166 in 2003 and 0.180 in 2004 show conservative dividends compared to cash flow. Even the highest points like 0.577 in 2019 and 0.504 in 2016 show that dividends are well covered, suggesting solid financial health. In the more recent years, the coverage ratio has been decreasing slightly from 0.577 in 2019 to 0.375 in 2023, a positive sign indicating ample cash flow coverage for dividends. The trend is favorable as it displays the company's continuous ability to generate sufficient cash flow to cover dividends, enhancing confidence in dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Criterion 4 focuses on stable dividends over the past 20 years, crucial for income-seeking investors aiming for consistent returns and minimal drawdown in income.

General Dynamics (GD) has demonstrated a remarkable consistency in its dividend payments over the past 20 years. The dividend per share started at $0.63 in 2003 and increased steadily to reach $5.22 in 2023. This highlights the company’s commitment to returning value to its shareholders through regular income. The analysis reveals no instance where the dividend per share dropped by more than 20% year-over-year during this period. On the contrary, the dividend has generally trend upwards, with only minor fluctuations, indicating financial stability and disciplined management. A notable dip occurred in 2011 when the dividend dropped from $2.51 to $1.68, but the subsequent years saw rapid increases, more than compensating for this decline. Therefore, General Dynamics meets the criteria for stable dividends over the past two decades, making it an attractive option for income-focused investors.

Dividends Paid for Over 25 Years?

Explanation of the criterion of whether dividends have been paid for over 25 years and its importance in dividend analysis.

General Dynamics (GD) has an impressive history of paying out dividends consistently over a span of more than 25 years. From 1998 to 2023, the company has not missed a single year of dividend payouts, and the dividend per share has increased from $0.4325 to $5.22. This long track record is crucial as it indicates the company's financial stability and commitment to returning value to shareholders. Consistent and growing dividends are a key indicator of robust health, principled management, and a shareholder-friendly approach. This trend is particularly beneficial for investors looking for reliable income and long-term growth. Good increases include years such as 2007 when dividends jumped from $0.89 to $1.10 and 2014 when they went from $2.51 to $1.68, representing significant upticks.

Reliable Stock Repurchases Over the Past 20 Years?

Analyzing whether a company consistently repurchases its shares over time is important as it can indicate financial health and a commitment to returning value to shareholders.

General Dynamics (GD) has shown a notable pattern of share repurchases over the past 20 years. Starting with 398.3 million shares in 2003 and decreasing to 273.1 million shares by 2023, the company has consistently bought back shares. There were 14 years showing reliable stock repurchases, with significant reductions during periods of 2011 to 2012 and 2014 to 2015, demonstrating GD's strong commitment to returning value to shareholders. The average repurchase rate of -1.8514% per year indicates a steady decline in available shares, which is a positive trend as it often leads to increased earnings per share (EPS) and higher shareholder value. Overall, this trend reflects well on GD, showing sound management’s ongoing efforts to bolster shareholder returns.