2 Defense Picks for a Trump or Clinton Presidency
Donald Trump has talked up his plan for a beefier US military, while Hillary Clinton wants to zero in on areas like cybersecurity and terrorism. But the bottom line is this: defense spending will head higher no matter what. Here are two solid dividend stocks that will cash in.
Northrop Grumman (NOC) gets an astounding 85% of its revenue from the US government, so it will be one of the first to benefit as defense spending ticks higher.
The company has already racked up big contract wins in the last year of the Obama administration, from a $55-billion deal to replace the B-2 bomber (the largest military-aircraft contract in more than a decade) to a just-awarded $255-million agreement to make surveillance drones for the Navy.
Northrop only gives annual updates on its backlog, but as of the end of last year, it was sitting on $36 billion of firm orders. That’s 1.5 years of sales! And I fully expect that figure to head higher this year, thanks to its sales team’s A+ effort.
The stock yields just 1.7% today, but don’t let that fool you: if you’d bought in five years ago, you’d be yielding a tidy 6.9% on your initial investment now, thanks to the payout’s 80% rise in that time.
Add in a payout ratio (or the percentage of earnings paid out as dividends) of just 30% and potential for even bigger contract wins after Inauguration Day, and you’ll be kicking yourself if you don’t get in on this one now.
Raytheon Co. (RTN): If you want to hedge your bets on military spending, Raytheon is the defense stock for you.
It has a lower dependence on the US government than Northrop (around 68% of sales) and a revenue stream that’s as balanced as you can get: each of its four main businesses chips in about 25% of total sales. And like Northrop, it’s sitting on a backlog that equates to about 1.5 years’ worth of sales.
Here are two things I love about Raytheon: it churns out missiles, torpedoes and guided munitions that constantly need to be replaced and it’s an R&D stud, having boosted its spending in this area by 57% in the past five years.
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Forbes
