In my public Dividend Growth Portfolio (DGP), I reinvest dividends when they accumulate in cash to $1000 or more.
That happened after the close of trading on Monday, May 18, and so on Tuesday, May 19, I went shopping.
I had already been zeroing in on General Dynamics (GD) as a possible Dividend Growth Stock of the Month for June, so I was compiling information on it anyway.
My early impressions were so positive that I decided to make it my purchase in the DGP.
General Dynamics came onto my radar screen not only because it is a high-quality company, but also because the general market crash that started in February had brought GD’s price down significantly, presenting a good entry point.
On the above chart from FASTGraphs, I placed maroon dots to mark General Dynamics’ high price at the end of January, 2018 and the price I paid. I got shares at a 38% discount to their all-time high, and for 23% less than they began this year.
What I Bought
General Dynamics is one of the world’s leading global aerospace and defense companies. It produces and sells a broad range of products and services, including business jets, submarines, combat vehicles, and IT communications systems.
GD employs over 100,000 employees in 40 countries. It operates in four business segments:
- Aerospace (24% of revenue, 35% of profit)
- Combat Systems (19% of revenue, 22% of profit)
- Information Systems and Technology (30% of revenue, 25% of profit)
- Marine Systems (27% of revenue, 18% of profit)
General Dynamics’ revenue comes from the U.S. Government (61%), U.S. commercial customers (15%), and international commercial and military customers (24%).
General Dynamics scores nearly perfectly on my Quality Snapshot system.
On a 25-point system (5 points for each category), GD scores 24 points. It is an elite company when it comes to quality ratings.
General Dynamics also has an attractive dividend growth record.
Without going deep into the details, General Dynamics is also quite undervalued at this time. For example, Morningstar rates it at 4 stars and 25% under fair value. Simply Safe Dividends reports that GD’s current yield (3.2%) is 60% higher than its 5-year average.
All in all, I got a high-quality dividend growth stock, sporting a good dividend resume featuring great dividend safety, for a heavily discounted price.
I executed the purchase on Tuesday morning, May 19. Here is the confirmation from E-Trade.
I got 7 shares of GD for $138 each. Total cost = $966. There was no commission.
Dividend Growth Portfolio Before and After
These graphics from Simply Safe Dividends show my portfolio’s annual rate of dividend income before and after the addition of the 7 new shares of General Dynamics.
As you can see, the DGP’s income increased by $31 per year, or about 0.7%. The number of positions in the portfolio went from 25 to 26.
The size of the new position is less than 1% of the portfolio. I know that sounds small, but this is how a dividend growth portfolio expands when there is no new outside money being added, just dividends.
Dividend Growth Investing can appear slow, but it is a relentless process that pays well over time.
- From 2009 to 2019, the dividend flow from the portfolio grew at a CAGR of 10.6%.
- The portfolio is now paying me more than 10% per year of the original amount I invested to start the portfolio.
- I currently estimate that I will receive about 11% more income in 2020 than I got in 2019.
This addition of General Dynamics carries on with my heightened emphasis on company quality that I have been pursuing for a few years. GD’s quality is stellar.
General Dynamics’ price skid from early 2018 to today set the stage for my purchase. At first glance, the price slide may seem a little hard to figure, because the company increased its earnings 15% in 2017 and 13% in 2018.
However, the company had become way overvalued by the end of 2017, so you could say that the first part of the skid was merely an example of GD’s price correcting back to a fair reckoning of its earnings.
Then coronavirus happened, and the price blew straight down from fair value to deep discount. I was lucky to have the money to invest just as GD’s price cratered to a deep-discount level.
— Dave Van Knapp
Other Reading Resources
General Dynamics is a holding in both Jason Fieber’s FIRE Fund and Mike Nadel’s Income Builder Portfolio. Each has recently written an article about General Dynamics (here and here).
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.