Northrop Grumman Corporation (NOC) has increased its quarterly dividend by 10% bringing the annualized payout to $2.20 per share from $2 per share earlier.
The quarterly dividend, after the hike, will come to 55 cents per share, up from the prior payment of 50 cents per share. The increased quarterly dividend will be payable on June 13, 2012, to shareholders of record as on May 28, 2012.
This is the ninth consecutive annual increase in Northrop Grumman’s quarterly dividend. Its prior dividend increase was made in April 2011. Last time, the company had increased its quarterly dividend by 6.4% to 50 cents per share compared to its previous payout of 47 cents per share.
Recently, in March 2012, its close peer General Dynamics Corporation (GD) also increased the quarterly dividend by 8.5% to 51 cents per share.
Northrop’s dividend increase reflects the company’s focus on cash deployment. Besides paying a competitive dividend, the company’s deployment strategy includes buying back of stock. In the first quarter of 2012, the company repurchased 4.4 million shares of its common stock for approximately $260 million. Currently, it has $1.4 billion remaining on its share repurchase authorization.
Overall, Northrop tries to actively manage capital resources through working capital improvements, capital expenditures, strategic business acquisitions and divestitures, debt issuance and repayment, and voluntary pension contributions. Moreover, we believe that its strong program portfolio is well positioned to take advantage of focus areas in the defense space, improving balance sheet and the ongoing share repurchase program.
In April 2012, the company reported impressive first-quarter 2012 results. Earnings of $1.88 per share compared favorably with $1.44 per share in the first quarter of 2011. Northrop results also exceeded the Zacks Consensus Estimate of $1.59 for the quarter.
However, we believe that these positives will be offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, cost over-runs and reductions in the Afghanistan and Iraq operations.
The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.
