Northrop Returns More to Shareholders - Analyst Blog

The board of directors of Northrop Grumman Corp. NOC boosted its annual dividend by 15.0%, marking the 11th consecutive annual increase. The company has increased the quarterly dividend to 70 cents per share from 61 cents per share, bringing the annualized payout to $2.80 per share.

The revised annualized dividend yield of the company comes to 2.4%, higher than the industry yield of 1.7%. The hike in dividend was on the cards with the company surpassing earnings estimates in the last four quarters with an average beat of 9.99%.

A steady dividend payout policy primarily reflects Northrop'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.

Northrop Grumman's maintenance of a strong balance sheet and cash flow position offers substantial financial flexibility and a cushion for an incremental dividend, ongoing share repurchases and earnings accretive acquisitions. Cash flow remained strong at $402.0 million despite higher capital expenditure during the first quarter 2014.

In the first quarter, the company repurchased 4.8 million shares for $564 million. With this the company achieved 40% of its goal of repurchasing 60 million shares by the end of 2015.

Northrop Grumman is effectively battling the current sequestration wave thanks to its diversified business nature and strategic acquisitions. With rising security tensions in the Middle East and in Asia between China and Japan, foreign military sales could prove to be the key performance catalyst for the company.

Furthermore, the fiscal 2015 budget provides for incremental spending for Space-Based Infrared System (SBIRS) Geosynchronous Earth Orbit GEO 5 & 6 satellite program. The company's advancement of the Global Hawk program has also caught the interest of Korea and several other countries.

Northrop Grumman currently has a Zacks Rank #3 (Hold). However, other defense stocks that are worth considering include The Boeing Co. BA, Embraer SA ERJ and Huntington Ingalls Industries, Inc. HII, each with a Zacks Rank #2 (Buy).

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