If you are looking for stable growth companies and high dividend yields, defense stocks can provide both. Defense, Terrorism and War are one of the top global trends to invest in.
We live in a dangerous world. Trends that include an increasing number of fanatics willing to kill innocent people will require technology and diligence to defeat. Add to the fact that as we have become more global and mobile we need more resources to keep the peace; not less.
Strategic Advantages of Defense Stocks
Defense stocks represent companies with several strategic advantages. First, this is a global business with worldwide needs. As mobility has increased, every region, country, city, etc. has growing needs to protect its citizens. Second, there are significant barriers to entry. Not just anyone can be a defense contractor. Large amounts of capital, expertise, and technology are required. The third strategic advantage is the large amount of consolidation that has taken place amongst defense contractors. This has given them large economies of scale and reduced competition.
Stable Growth Companies
The balance sheets of most large blue chip companies are very conservative or even pristine. Low debt and the above strategic advantages make these companies very stable and provide a margin of safety.
Emphasis on technology and “smart” weapons provides opportunities for growth. Better technology is playing a major role in meeting the need for military upgrades. Smaller and portable devices for identifying people, transmitting data, and communications make military operations safer and more efficient. Unmanned aircraft, including drones that fire missiles, save lives and make military strikes more precise.
Terrorism in particular has greatly changed the way wars are fought. In order to stay ahead of those wanting to kill innocent people and disrupt world commerce, we are investing money in new and better technologies to stay one step ahead of the terrorist. As optimistic people we always hope for peace that allows us to spend less money on arms. But history shows these periods are very short lived, thus making defense stocks stable growth companies.
High Dividend Yields
The expected cut in military spending has provided an opportunity to buy defense stocks at bargain prices. If history is any guide the cuts will probably be much less than anticipated and future allocations to global defense and homeland security will have to increase. Some defense stocks represent blue-chip companies with solid balance sheets and stock prices low enough to offer dividend yields in excess of 4%.
Here are some ways to participate in companies meeting the needs of Defense, War and Terrorism:
Dividend
Price Yield
Boeing (BA) $63.56 2.6%
Honeywell International (HON) $46.75 2.8%
General Dynamics (GD) $59.55 3.2%
ITT Corp (ITT) $44.15 2.3%
L-3 Communications (LLL) $64.37 2.8%
Lockheed Martin (LMT) $75.44 4.0%
Northrop Grumman (NOC) $53.85 3.7%
Raytheon (RTN) $41.35 4.2%
In summary, defense stocks provide strategic advantages that make them stable growth companies, and currently sell at prices that provide high dividend yields. Every investor should consider having exposure to defense stocks within a diversified portfolio.
Disclosures: The Arbor Asset Allocation Model Portfolio (AAAMP) has long positions in GD, ITT, LMT, and RTN. No positions in BA, HON, LLL, and NOC. (9/20/2011)
| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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