Updated on February 11th, 2025 by Felix Martinez
Investors looking for high-quality dividend growth stocks should take a closer look at the Dividend Aristocrats. The Dividend Aristocrats are a group of 69 companies in the S&P 500 Index, with 25+ consecutive years of dividend increases.
You can see a full downloadable spreadsheet of all 69 Dividend Aristocrats, along with several important financial metrics such as price-to-earnings ratios and dividend yields, by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
We review all 69 Dividend Aristocrats each year. The next stock in the series is aerospace and defense company General Dynamics (GD).
General Dynamics is a leader in the aerospace and defense industry, with a long history of dividend increases and steady growth.
Business Overview
General Dynamics was incorporated in 1952 through the combination of the Electric Boat Company, Canadair, and several others.
The company has evolved over the years to enter new businesses of the future. The biggest transformation came in the 1990’s, when General Dynamics started buying technology-oriented companies. General Dynamics currently generates annual sales nearing $50 billion.
The company’s revenue stream has been diversified in recent years, and it now no longer relies as much upon the Aerospace segment as it used to.
A breakdown of its segments and their contribution to revenue is below:
- Aerospace (21% of revenue)
- Combat Systems (19% of revenue)
- Technologies (33% of revenue)
- Marine Systems (27% of revenue)
The company’s Aerospace segment is focused on business jets and services, while the remainder of the company is engaged with defense-related operations.
General Dynamics makes the well–known M1 Abrams tank, Stryker vehicle, Virginia–class submarine, Columbia–class submarine, and Gulfstream business jets. These strong businesses have combined to produce consistent growth for many years.
Growth Prospects
General Dynamics reported strong financial results for Q4 and full-year 2024. Quarterly net earnings rose 14.2% to $1.1 billion on $13.3 billion in revenue, while full-year earnings increased 14.1% to $3.8 billion on $47.7 billion in revenue. Diluted EPS grew to $4.15 for the quarter and $13.63 for the year. CEO Phebe Novakovic highlighted steady growth across all segments and strong order activity, maintaining a 1-to-1 book-to-bill ratio.
The company generated $2.2 billion in Q4 operating cash flow, 188% of net earnings, and $4.1 billion for the year. Investments included $916 million in capital expenditures, $500 million in debt repayment, and $3 billion returned to shareholders. General Dynamics ended 2024 with $90.6 billion in backlog and an estimated total contract value of $144 billion, up 9.1% year-over-year.
Aerospace led revenue growth, up 36.4% to $3.7 billion for the quarter, while Marine Systems, Combat Systems, and Technologies also posted gains. Key defense contracts included a $5.6 billion U.S. Air Force deal, a $2.2 billion U.S. Space Force contract, and $1.9 billion in U.S. Navy contracts. Strong demand across all segments positions the company for continued growth.
General Dynamics’ top and bottom lines have grown for many years due to increasing U.S. defense spending and international sales. General Dynamics has established naval and ground platforms that support maintenance and modernization contracts as well as future prime contract wins.
We forecast, on average, 6% annual earnings per share growth out to 2030.
Source: Investor Presentation
Competitive Advantages & Recession Performance
General Dynamics has several competitive advantages. First, it is a leader in the defense industry, with very high entry barriers. Defense companies rely on contracts from the U.S. and foreign governments.
A small competitor would have difficulty entering the defense industry and trying to take share.
In addition, General Dynamics has industry-leading brands, such as Gulfstream and Stryker. It has built these brands with significant research and development spending that totals in the hundreds of millions of dollars annually.
Indeed, this is part of the significant barriers to entry for potential competitors.
General Dynamics is built to last. The company performed very well during the last recession:
- 2007 earnings-per-share of $5.10
- 2008 earnings-per-share of $6.13 (20% increase)
- 2009 earnings-per-share of $6.20 (1.1% increase)
- 2010 earnings-per-share of $6.82 (10% increase)
As you can see, the company grew earnings in each year of the recession, including two years of double-digit growth. It would be difficult to find many companies that grew earnings-per-share by 20% in 2008, but General Dynamics did it.
One primary reason for the company’s excellent recession performance is that it sees steady demand for its products and services each year. The world has many dangerous places. Global conflicts are not likely to cease any time soon, regardless of the economic climate. This will drive ever-increasing levels of defense spending, the US included.
The ongoing war in Ukraine and the U.S.’s decision to supply the country with M1 Abrams tanks should also be proven a growth driver for the company as Western Allies will need to replenish their stocks.
And, long-term contracts with its customers secure General Dynamics’ revenue, and switching costs are very high, sometimes impossibly so. This also keeps earnings intact during recessions.
Source: Investor Presentation
Valuation & Expected Returns
General Dynamics stock has a price-to-earnings ratio of 17.3, which is above our fair value estimate of 16 times earnings.
If the valuation multiple declines from 17.3 to our fair value estimate of 16, it would reduce annual returns by approximately 1.5% per year over the next five years.
Fortunately, shareholder returns will be boosted by projected earnings-per-share growth of 6% per year, as well as the current dividend yield of 2.2%. The dividend payout is highly secure, with a projected 2025 dividend payout ratio of just 39%, which leaves plenty of room for annual dividend increases.
Given all of these factors, we see total annual returns of about 6.6% in the coming years. Considering notable tailwinds could follow during the ongoing, favorable environment for defense companies, we rate the stock as a hold.
Final Thoughts
General Dynamics is a high-quality business with a long history of growth. Geopolitical risk remains a constant, which gives the company a long runway of growth in the future.
General Dynamics is also a shareholder-friendly company and should continue returning significant cash to shareholders through buybacks and dividends. The elevated valuation could limit the stock’s annual returns over the next five years, but General Dynamics should be a reliable long-term holding, likely to be highly appreciated by dividend-growth investors.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 54 stocks with 50+ years of consecutive dividend increases.
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The 20 Highest Yielding Monthly Dividend Stocks
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: