Wednesday, February 08, 2012

General Dynamics (GD) 2012 Review

General Dynamics (GD) 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 14% and 12% 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) its broad product line should help sustain growth momentum,

(2) its products have strong congressional support,

(3) acquisitions,

(4) an aggressive cost reduction program

(5) robust cash generation is financing an aggressive stock buy back program.


(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 22%, is rated A++ by Value Line and its stock provides a yield of 3.0%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
GD 3.0% 9% 26% 10
IND 1.3 9* 22 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
GD 22% 19% 1 8% A++
IND 35 21 NA 9 NA

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


Note: GD stock made good initial progress off its March 2009 low, quickly surpassing the down trend off it August 2008 high (straight red line). However, it took considerably longer to challenge the November 2008 trading high (green line). Long term the stock is in a trading range (blue lines). Intermediate term, it is also in a trading range (purple lines). The wiggly red line is the 50 day moving average. The Dividend Growth Portfolio owns a full position in GD. The upper boundary of its Buy Value Range is $62; the lower boundary of its Sell Half Range in $82.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.