How To Get Growing Dividends From $573 Billion Annual US Military Spending

On April 27, General Dynamics reported strong first-quarter 2016 financial results, which beat earnings-per-share expectations by $0.18 (8.3%). The company posted revenues of $7.72 billion in the quarter, also surpassing the consensus estimate of $7.68 billion.

GD has shown earnings-per-share surprise in all its last five quarters, as shown in the table below:

Source: Yahoo Finance

In the report, Phebe N. Novakovic, chairman and chief executive officer, said:

“General Dynamics delivered a strong first quarter, with all four groups contributing to our outstanding operating performance. We generated positive operating leverage and achieved the sixth straight quarter with operating earnings of more than one billion dollars.”

Although General Dynamics’ revenues have been flat in the last few years due to U.S. government budget cutting, in my view, it is very encouraging that the company has been able to grow profits by improving operating margins.

Revenue in the first quarter of $7,724 million was down 0.8% from the same quarter a year ago while operating earnings of $1,053 million were up 2.5% due to better operating margin which was up 0.4% year-over-year. Moreover, three of the company’s four business groups expanded margins over the year-ago period.

Source: company’s report

Rising margins will help to increase growth. The company’s annual average earnings-per-share growth over the last five years was at 5.9%, and the average annual estimated earnings-per-share growth for the next five years is better at 8.8%.

General Dynamics Corporation (NYSE:GD) has four primary business segments:

– Aerospace

– Combat Systems

– Marine Systems

– Information Systems and Technology

Segment revenues and operating earnings for the first quarter of 2016 are shown in the chart below.

Source: company’s report

In addition, General Dynamics has a strong balance sheet. At the end of the first quarter, the company had cash and cash equivalents of $2.8 billion and total debt of $3.4 billion. The total debt to equity ratio was low at 0.32.

Net cash provided by operating activities in the recent quarter totaled $439 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $374 million.