Northrop: Defensive Play in Defense

06/04/2015 8:00 am EST

Focus: STOCKS

David Fish

Executive Editor, Moneypaper

Nobody can predict the future, so adopting (or continuing) a strategy of dollar-cost averaging is usually the best approach, explains dividend reinvestment expert David Fish, editor of Direct Investing.

Whether the overall stock market continues to suffer from alternating bouts of selling and buying or it settles into its usual summer doldrums, investors should continue to keep their eye on the individual stocks that they are accumulating.

Reinvesting dividends and focusing on companies that regularly raise their dividends further enhances the compounding that serves investors well over the long-term. Letting stock market noise throw you off course is never a wise choice.

Founded in 1939, Northrop Grumman (NOC)—our latest featured dividend reinvestment idea—provides products and services for the aerospace, defense, electronics, information, and shipbuilding industries.

The US government accounts for over 90% of sales, but products vary from manned and unmanned aircraft to communications and navigation systems, to nuclear-powered aircraft carriers and submarines.

Annual revenues top $24 billion and consensus estimates call for the company to earn about $9.60 per share this year and $10.64 in 2016, compared with $9.75 in 2014.

So the stock's price/earnings ratio is expected to remain below 10 and the current annual dividend of $2.80 per share is well covered.

The dividend has been increased for 11 straight years and provides a yield of 1.8%, but another increase is expected within the next month.

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