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What are we looking for?

Sustainable dividends from aerospace companies still tapping a stream of military spending.

The screen

Thursday’s return of the Boeing 737 Max to Canadian skies follows a similar decision by U.S. regulators to lift their ban on the airplane. The move ends a 22-month grounding after two crashes that killed 346 people. More broadly, the airplane’s return is spurring hopes for a return to normal for the troubled aerospace industry.

For its part, Boeing Co. has yet to reinstate its dividend, suspended last March as COVID-19 took hold. Still, other industry manufacturers, with deep defence contracts to offset the pandemic slowdown for their commercial units, appear to be well positioned to protect investor dividends.

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Our search started with an extensive list of dividend-paying Canadian and U.S. aerospace contractors with sound defence divisions. We then applied our TSI Dividend Sustainability Rating System to those that have maintained their dividends despite the pandemic. Our system awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated five companies ready to protect their payments to shareholders through strong divisions supplying military customers. Magellan Aerospace Corp., headquartered in Mississauga, makes military aircraft components. Maxar Technologies Inc. of Colorado, listed on both the New York and Toronto stock exchanges, continues to win contracts for its radar and satellite offerings. Virginia-headquartered General Dynamics Corp. remains a leading military contractor in the United States and globally. Massachusetts-based Raytheon Technologies Corp. makes weapons, including cruise missiles, while Lockheed Martin Corp. is a Maryland-based industry giant.

Aerospace dividend stocks

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)**1Y Ttl. Rtn. (%)Recent Price ($)**
1General Dynamics Corp.GD-NHighest$10.002.943.90-15.3154.03
2Lockheed Martin Corp.LMT-NHighest$10.00395.50-19.7342.5
3Raytheon TechnologiesRTX-NAbove Average$9.002.8105.3-24.468.84
4Magellan AerospaceMAL-TAbove Average$8.004.40.5-34.29.43
5Maxar Technologies Inc.MAXR-TAverage$5.000.14.3158.269.17

Source: Dividend Advisor

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

**Share price and market cap are in native currency.

James Bates is a senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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