Raytheon Returns More to Shareholders - Analyst Blog

The board of directors of Raytheon Co. RTN boosted its annual dividend by 10.0%, marking the 10th consecutive annual increase. The company has increased the quarterly dividend to 60.5 cents per share from 55 cents per share, bringing the annualized payout to $2.42 per share.

The revised annualized dividend yield of the company is 2.4%, higher than the industry yield of 1.83%. The hike in dividend was on the cards with the company surpassing earnings estimates in the last four quarters with an average beat of 19.65%.

A steady dividend payout policy primarily reflects Raytheon's robust financial position and balanced capital deployment strategy. The increase in dividend at periodic intervals has been one of the most attractive features of this defense major, providing risk-adjusted returns to its stockholders. The latest rise comes almost after a year of its prior dividend increase declared on Mar 2013, when it was 55 cents per share.

With approximately $2.4 billion of free cash flow exiting 2013, Raytheon's solid financial position well cushions the payout. Raytheon ended 2013 with cash and cash equivalents of $3.3 billion, up 3.4% from the year-ago figure of $3.2 billion.
 
We believe rising demand from the Gulf countries as well as from the Asia-Pacific region to be the company's key revenue driver. At home, despite the sequestration, Raytheon appears to have clinched high-value contracts during the last reported quarter.

The 2014 fiscal budget prioritized investments in Missile and Space Systems, which are expected to bring in more contracts for Raytheon. In addition, the company focuses on technological advancements to make defense solutions affordable and effective.

Raytheon currently has a Zacks Rank #1 (Strong Buy). Other players in the industry include Huntington Ingalls Industries, Inc. HII, Wesco Aircraft Holdings, Inc. WAIR and Northrop Grumman Corp. NOC. While Huntington Ingalls and Wesco Aircraft hold a Zacks Rank #1 (Strong Buy), Northrop Grumman carries a Zacks Rank #2 (Buy).