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These Dividend Achievers Aren't 'Dogs'
06/12/2013 8:45 am EST
Share buybacks and healthy dividends make these two stocks attractive, says John Buckingham of The Prudent Speculator.
General Dynamics (GD) is a leader in business aviation; land and expeditionary combat vehicles and systems; armaments and munitions; shipbuilding and marine systems; and mission-critical information systems and technology.
Widely known for its defense businesses, GD is involved in much more, with its aerospace unit owning one of the premiere brands in the industry, Gulfstream Jets, which boasts solid returns and strong future prospects.
In fact, the Gulfstream G650 is listed at $65 million per plane, with the backlog for this jet now valued at some $13 billion. The potential of this division should help offset some of the near-term difficulties the defense segment faces from US defense budget austerity.
GD recently reported excellent first-quarter results, earning $1.62 per share versus consensus expectations of $1.50. While revenue during the period dipped to $7.4 billion, the firm generated free cash flow of $429 million.
GD maintains a solid firm-wide backlog of business (currently $48.5 billion), owns a strong balance sheet, and generates robust cash flow that should allow management to continue to look for value-added acquisitions, as well as to offer share buybacks and dividend hikes. EPS of at least $6.75 are expected in 2013, while we like the current dividend yield of 3%.
Meanwhile, PetMed Express (PETS) is a nationwide pet pharmacy that delivers prescription and non-prescription pet medications for dogs, cats, and horses directly to the consumer. The company also sells pet accessories, pet food, and health and nutritional supplements. PetMed's products are marketed primarily through its Web site and over the telephone.
We like that management has announced that it is focusing on advertising efficiency and shifting sales to higher-margin items, while continuing to expand its product offerings.
We believe that PetMed has ample room for growth in the $50 billion pet market. The potential the space offers continues to attract new players, as shown by Amazon's recent announcement that its Wag.com unit would begin offering fulfillment of pet prescriptions.
We believe that PETS is more than capable of rising to the additional competitive challenges, and we like that management continues to buy back stock. The company also appears committed to the generous 4.5% dividend, which is supported by a strong balance sheet that boasts no long-term debt and over $2 per share of cash.
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