General Dynamics (GD) has increased its quarterly dividend by 12%, bringing its annualized dividend rate to $1.88 per share from the previous payout rate of $1.68 per share. With this hike, the company has raised its dividend for 20 consecutive years.

General Dynamics said it will now pay a quarterly dividend of 47 cents per share to its shareholders compared with 42 cents paid earlier. The increased quarterly dividend will be paid on May 6, 2011, to shareholders of record as on April 8, 2011.

General Dynamics’ new annualized dividend rate reflects a current yield of 2.5%. This compares favorably with the current dividend yield of its peer Boeing Co. (BA) which is 2.41%.

General Dynamics has raised its dividend every year since 1992 and the increases are gaining momentum. The last time General Dynamics declared such a large dividend was in September 1993, when it paid $1.50 a share. Since then, the stock has split three times. It increased its last dividend in March 2010. The company has offered its shareholders a double-digit raise every year since 2004.

In January this year, General Dynamics announced its fourth-quarter 2010 operating earnings of $1.91 per share, surpassing the Zacks Consensus Estimate of $1.85. The company’s full year earnings of $6.82 was also ahead of the Zacks estimate of $6.76.

General Dynamics has one of the strongest balance sheets among its peers with a low long-term, debt-to-capitalization of 15.4% at year-end 2010 (Zacks Industry Average was 88.4%).

General Dynamics’ free cash flow from operations in 2010 reached $2.6 billion, providing the scope to return value to shareholders in the form of dividends and share repurchases. The company’s sizeable cash flow also leaves room for investments in research and technology.

Based in Falls Church, Virginia, General Dynamics Corporation engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.

We maintain our Neutral recommendation on General Dynamics. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

 
BOEING CO (BA): Free Stock Analysis Report
 
GENL DYNAMICS (GD): Free Stock Analysis Report
 
Zacks Investment Research