General Dynamics (GD) is currently a high dividend stock: should you buy?

Whether through stocks, bonds, ETFs or other types of securities, all investors love to see their portfolios generate big returns. However, when you are an income investor, your primary goal is to generate consistent cash flow from each of your liquid investments.

Cash flow can come from interest on bonds, interest from other types of investments and, of course, dividends. A dividend is the distribution of a company’s profits paid to shareholders; it is often viewed by its dividend yield, a measure that measures a dividend as a percentage of the current stock price. Numerous academic studies show that dividends are a large part of long-term returns, and in many cases dividend contributions exceed one-third of total returns.

General dynamics at a glance

General Dynamics (GD) is headquartered in Reston and is in the aerospace industry. The stock has seen a 27.53% price change since the start of the year. Currently paying a dividend of $ 2.38 per share, the company has a dividend yield of 2.51%. In comparison, the performance of the Aerospace – Defense industry is 0.12%, while that of the S&P 500 is 1.33%.

Looking at the company’s dividend growth, its current annualized dividend of $ 4.76 is up 10.2% from a year ago. Over the past 5 years, General Dynamics has increased its dividend 5 times year over year for an average annual increase of 9.66%. Future dividend growth will depend on earnings growth as well as the payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as dividends. Currently, General Dynamics’ payout ratio is 40%, which means it has paid 40% of its past 12-month EPS as a dividend.

For this fiscal year, GD expects solid earnings growth. Zacks’ consensus estimate for 2021 is $ 11.20 per share, which represents a year-over-year growth rate of 1.82%.

Final result

Whether it’s dramatically improving earnings from equity investments and reducing overall portfolio risk or offering tax benefits, investors love dividends for a variety of reasons. However, not all companies offer quarterly payment.

For example, it is rare for a tech start-up or a fast-growing company to offer a dividend to its shareholders. It’s more common to see larger companies with more established earnings pay dividends. Income investors should be aware that high yielding stocks tend to struggle during times of rising interest rates. With that in mind, GD is a compelling investment opportunity. Not only is this a big dividend game, the stock currently sits at Zacks rank of 3 (Hold).

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