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What are we looking for?

Sustainable dividends from military contractors prepared for current and future demand.

The screen

The appalling Russian invasion of Ukraine prompted a previously reluctant Germany last week to lift its military spending above 2 per cent of GDP going forward. Europe’s largest economy is not alone, with international support for Ukraine prompting a broader strategic rethink of military budgets, not only by other member countries of the North Atlantic Treaty Organization, but also governments worldwide.

From a list of Canadian and U.S. dividend payers we identified leading companies already tapping demand for defensive weaponry and support. Those contractors also stand to benefit from military spending in the long-term – well past the current crisis. We then applied our TSI Dividend Sustainability Rating System.

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow to cover dividends;
  • One point if the company’s an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and The TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Crisis puts dividend-paying defence contractors in the spotlight

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)**1Y Ttl. Rtn. (%) Recent Price ($)**
1Lockheed Martin Corp.LMT-NHighest102.5124,347.232.9450.00
2General Dynamics Corp.GD-NHighest102.064,792.540.7235.75
3Raytheon Technologies Corp.RTX-NAbove Average92.0153,307.235.3100.74
4Northrop Grumman Corp.NOC-NAbove Average91.471,198.151.8453.39
5Magellan Aerospace Corp.MAL-TAverage64.2579.6-1.79.98

Source: Dividend Advisor.

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

**Share price and market cap are in native currency.

Our TSI Dividend Sustainability Rating System generated five stocks.

Lockheed Martin Corp., headquartered in Maryland, is an industry giant that makes a range of advanced fighter planes, missiles and leading-edge electronics. Northrop Grumman Corp., based in Virginia, offers an array of manned and unmanned airborne systems as well as electronic warfare technology. General Dynamics Corp., also based in Virginia, remains a leading military contractor in the U.S. and globally.

Massachusetts-based Raytheon Technologies Corp. makes military aircraft engines. It also makes weapons, including Tomahawk cruise missiles. Magellan Aerospace Corp., headquartered in Mississauga, makes products including engine and structural components for military aircraft. It also makes the CRV7 rocket weapon system. (We should note that Boeing Co. of Chicago, maker of a range of jet fighters, guided weapons and more, has yet to reinstate its dividend, suspended in March, 2020.)

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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