Saturday, April 16, 2016

Recent Transfer: Northrop Grumman Corporation

Founded in 1939 and based in Falls Church, Virginia, Northrop Grumman Corporation (NYSE:NOC) is a leading global security company with both government and commercial customers. NOC provides systems, products and solutions in unmanned systems; cyber security; command, control, communications and computers intelligence; surveillance and reconnaissance; and logistics and modernization.

NOC is a Dividend Contender with a 12-year streak of dividend increases. The company pays quarterly dividends of 80¢ per share in the months of March, June, September and December. At the current share price of $200, the stock yields 1.60%.

Regular readers will know that I'm busy consolidating several portfolios containing my dividend paying stocks. These posts capture past transactions and dividend income, and I update projected annual dividend income (PADI) accordingly.

Today's transfer adds another new position to DivGro, so I now own 61 different stocks and funds.

Since completing the consolidation of my Scottrade and traditional IRA portfolio's, Ive been transferring stocks from my Roth IRA. Here's a summary of Roth IRA stocks transferred so far:
Here is a chart showing my buy prices:

The 2 buys I'm transferring today are connected with red dashed lines. Average cost basis is $152.50, while yield on cost (YoC) averages to 1.70%. Despite the low yield, I'm happy with my investment in NOC!

2014-01-03  Bought: 8 shares of NOC at $114.06 per share:$912.48
2014-03-19Dividend on 7 shares at 61¢ per share:$4.88
2014-06-18Dividend on 7 shares at 70¢ per share:$5.60
2014-09-17Dividend on 7 shares at 70¢ per share:$5.60
2014-12-17Dividend on 7 shares at 70¢ per share:$5.60
2015-03-18Dividend on 7 shares at 70¢ per share:$5.60
2015-06-17Dividend on 7 shares at 80¢ per share:$6.40
2015-09-16Dividend on 7 shares at 80¢ per share:$6.40
2015-12-16Dividend on 7 shares at 80¢ per share:$6.40
2016-02-19Bought: 8 shares of NOC at $190.93 per share:$1,527.44
2016-03-16Dividend on 14 shares at 80¢ per share:$12.80
 Total Capital Invested $2,439.92

Total Dividends Received:$59.28

With this transfer, DivGro's projected annual dividend income (PADI) increases by $51.20 and I'm adding $59.28 in past dividends to DivGro's total dividend income.

Ratings and Fair Value Estimates for NOC

Following is a table containing updated ratings of NOC from various sources:
 Morningstar Ratings (**---) Credit Rating: A-'s DARS Rating  3.4/5 (Neutral)
 TheStreet Ratings Rating  Buy [A-]
 The Motley Fool's CAPS Rating  (****-)
 Thomson Reuters StockReport+ (9/10) Positive 
 S&P Capital IQ Stock Report Sell (**---) Quality Ranking: A 
 Zacks Rank and VGM Style Score 4-Sell (VGM:B)
 Tipranks Analysts Consensus Rating  Strong Buy
  †combined Value/Growth/Momentum score

Morningstar's fair value estimate of NOC is $176.00, whereas S&P Capital IQ calculates a fair value of $173.40. According to Tipranks, based on 4 ranked analysts offering 12-month price targets for NOC, the average price target is $210.25. Finally, using a Comparative Analysis based on EBITDA, courtesy of, NOC has a fair value estimate of $189.69 (see below).

The average of these valuations is $187.34, which means NOC is trading at a premium of about 7% to fair value.

Why NOC?

Here are some reasons why I like NOC:
  1. The stock's 10-year dividend growth rate (DGR) is an impressive 13%! If we divide the 5-year DGR by the 10-year DGR, we get 1.02, which means the company is sustaining and slightly accelerating dividend increases. The most recent dividend increase was 14.3%.
  2. The payout ratio is low at about 30%. NOC has an aggressive share buyback program, which continues to bolster the stock price.
  3. NOC generates income from a diverse mix of aerospace and defense businesses.
  4. The company generates $2.5 billion in annual operating cash flow and should be able to withstand reasonable budget cuts.
  5. Value Line has a Financial Strength Rating of A++ and a Safety Rank of 1. 
What do you think of NOC. The yield is quite low for a dividend growth stock, but the dividend growth rate is solid. Do metrics like that excite you? Please share your thoughts in the comments section below.

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