Raytheon Dividend Stock Analysis
I like to have defense sector companies in my dividend stock portfolio. Why? Diversification. When the world is threatened by a big conflict and the stock market goes down, defense sector stocks usually go up. So let’s take a look at one of my favorites.
Above all, please join me for a dividend deep dive of Raytheon. Certainly I will have some thoughts on the Raytheon dividend, dividend growth and more.
COMPANY BACKGROUND
Raytheon is an international aerospace and defense company headquartered in Waltham, Massachusetts. Their four businesses work together to craft solutions for a wide variety of government and commercial customers. The four businesses are:
- Integrated defense systems to protect against attack
- Intelligence, information and services providing cybersecurity products and solutions
- Missile systems for both defensive and offensive situations
- Space and airborne systems including radars, sensors and communication products
RAYTHEON DIVIDEND YIELD
Raytheon pays an annual forward dividend of $3.47 cents per share. As a result, this gives us a 1.7% Raytheon dividend yield at the recent price of $207 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
| 1 Year | 3 Years | 5 Years | 7 Years |
| 8.8% | 9.1% | 9.6% | 10.7% |
First of all dividend growth has been strong. Also, the Raytheon dividend has been increased for 14 consecutive years.
REVENUE
Revenue has been on a nice uptrend recently. In contrast to 2013 and 2014 when revenue growth was pressured as a result of US government spending reductions from the budget sequestration. Most noteworthy, about two-thirds of Raytheon’s sales are made to the US government.
RAYTHEON DIVIDEND, EARNINGS AND PAYOUT RATIO
Earnings have been growing at a healthy rate. Furthermore, 2018 earnings look very strong driven by revenue growth and lower taxes.
Also, the dividend payout ratio is at a modest level. It has ranged between 30% and 40% in recent years. Finally, the 2018 dividend pay out is projected to come in at the mid-point of this range.
Above all, a lower dividend payout ratio is generally better for the investor. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce the dividend.
CREDIT RATING
Knowing a company’s credit rating is important. Furthermore, it can make a big difference between companies that struggle to survive during a business downturn and those that prosper.
Also, a corporation’s credit rating is similar to how your personal credit score works. Most noteworthy, higher ratings mean lower risk to those who lend the company money. Finally, a higher rating mean lenders will likely get their money paid back.
Certainly we are not lenders here at Dividends Diversify. We are dividend stock investors. However, it never hurts to check out a company’s credit worthiness.
Above all, Raytheon is rated investment grade with low credit risk by two of the major rating agencies, Moody’s and S&P. Most noteworthy, this is a good sign for Raytheon and its lenders.
VALUATION & CONCLUSION
Raytheon’s stock price has been on a rapid rise the last 6 years. Even more it has nearly quadrupled in value. Despite solid earnings growth, the stock price increase has resulted in a higher price to earnings ratio.
The sizable jump in projected 2018 earnings and a recent pull back in the stock price has the forward price to earnings ratio settling in at about 20 times earnings. Above all, a lower price to earnings ratio typically represents a better value for the investor.
SUMMARY & WRAP UP
I built my position in Raytheon during 2011-2012. During that time, the defense industry struggled with the uncertainty of U.S. government spending. Because of the large stock price appreciation, Raytheon holds a mid size position in my dividend stock portfolio.
I like the company and its prospects, but would prefer a higher dividend yield. Certainly closer to 2.5% before I would add fresh capital.
For those looking to initiate a position and willing to accept a lower current yield in exchange for higher potential dividend growth, I believe the stock is reasonably valued below $195 per share.
OTHER RELATED ARTICLES
I hope you enjoyed this article. If so, here are a couple others that you may find interesting:
- The model portfolio where Raytheon resides: The Dividend Deluxe
- The process I use for dividend stock analysis: The Dividend Deep Dive
- Another industrial sector Dividend Deep Dive: Cummins
WHAT ARE YOUR COMMENTS?
Do you own Raytheon? What do you think of the company’s prospects? Leave a comment and let us all know!
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Disclosure & Disclaimer
As of this writing, I am long Raytheon. First of all, the information on this site is for educational and entertainment purposes only. In addition, the information is not to be used as investment advice specific to your circumstances. Furthermore, consult your personal investment and/or tax advisers prior to investing money. Finally, please realize you are solely responsible for any investment gains or losses as a result of the investments you enter into. Most noteworthy, you can find additional information under this site’s disclaimer tab: Disclaimer & Privacy Policy.
Nice overview, Tom. I don’t own Raytheon but they do appear to have some appealing prospects based on the information you’ve highlighted. – Mike
Raytheon has thrown off some really powerful investment returns Mike. The stock will likely correct in the future, but the longer term seems pretty bright to me. Tom
Hi Tom,
Nice analysis. Like you say, I find the dividend yield a bit low, but really like the diversification of a defense-sector stock. As far as I know, I don’t own any (maybe in a fund). I think I should take a second look at this sector.
Cheers,
Miguel
Lockheed Martin is another good one Miguel. Both good for diversification when the world gets crazy. Tom
I haven’t given the Defense sector much consideration except that I was looking at Lookheed Martin some time ago. I certainly can’t argue with the notion that diversification is one of several good reasons to invest in this sector, including perhaps Raytheon. I just haven’t given it much thought for some reason. But, I agree with the other comments that it was a good overview of the company.
Thanks for doing another deep dive Tom.
Thanks DP. Lockheed is the other name I own in the sector and it too has done quite well. And that’s part of the challenge right now that defense stocks have done so well that their dividend yields have become pretty low. Tom
Nice analysis Tom, and like the others I have not put a priority on the defense sector as of yet in my DGI portfolio. I don’t really have a good explanation as to why I haven’t, but it wasn’t an area that caught my attention with good value at this time.
Taking a look at Raytheon, there is quite a bit that looks good but I do agree with you that seeing the yield move north of 2% would represent a better value than the current price. Looks like you’ve had quite a return on this one since your entry point, nice job!
Yes. It’s so tough to invest when things do not look good for a sector or specific stock, but that’s when the money is there to be made. Of course, I don’t get them all correct. But over time the winners tend to out number the losers for good dividend payers. Tom
Very detailed dividend analysis, thanks for putting it together DD. The valuation is a little high for me. However, the valuation is trending in the right direction. I like you target dividend yield for this stock. Make sure you let us know if it hits this mark and you decide to add.
Cheers,
Bert
Sure thing Bert. Like you I always keep a close eye on the stocks I own. Tom
nice Writeup Tom
I dont own any military companies but have always thought of adding one. Unfortunately fear will always be rampant and governments (especially the u.s) will spend a tonne to maintain the military status.
Seems like a good industry to invest in, but as you pointed out maybe not at these prices.
cheers Tom
Yes Rob. Sounds like a good thought process. Keep an eye on them. Maybe we will get a correction and have an opportunity to add. Tom
I stay away from directly investing in anything to do with defense contractor but the stock does look pretty solid.
Great analysis Tom.
I wonder Caroline. Is your avoidance of the sector due to personal beliefs about international conflicts? Some folks will avoid these companies for that reason I know. It would be nice if we could take all the money spent on national defense and spend it on something productive. Or better yet, reduce the national debt here in the US. Tom
Hi Tom,
It is due to personal beliefs but I don’t judge others for their choices;)
Caroline
I try not to as well Caroline. As long as people play nice, they should be able to do as they choose. Tom
As always, thanks for another deep dive Tom. Its always a learning experience seeing these kinds of post since it highlights the though process behind the decision making.
As for the stock itself, I don’t invest in any stock concerning weapons / weapon systems no matter the rationale. Thats something personal and thas nothing to do with the financial metrics which looks pretty good.
Totally understand Mr. R. That money by our governments sure could be put to better use. Tom
I have NOC and it’s served me well over the years. I’ve noticed defense stocks don’t pay the best dividends. I suppose there is so much room for growth and innovation; that may be why.
I’ve looked at NOC a few times too SMM, but never purchased. LMT is my other holding in the sector. The sector has run up really fast the last couple years bringing the dividend yields down, but the dividend growth has been pretty good in my opinion. Tom
Hi Tom, very good analysis. When I visited the R&D section of the Air Force Museum in Dayton, I realized tons of government money was invested on the defense and aerospace. It’s solid business, as the country always needs those fighter jets and missiles.
Hi Helen, I thought about you and your tour of the Dayton museum as well as the air show when I was writing and picking out the picture for this post! Tom
Hey, Tom. Great analysis as usual. I haven’t ventured into the dividend world yet, but I’m becoming increasingly interested. And that’s because of you, my friend. Cheers.
Always glad to be an inspiration. Thanks for visiting Mr. G. Tom
Great analysis Tom! I always learn something stopping by Dividends Diversify 🙂
Glad that’s the case GYM. Tom