Wednesday, June 3, 2009

* Are Defense Stocks Good Defensive Stocks?

When the economy and the market starts heading south, many investors start buying Dividend Stocks. They have long been considered a defensive position in turbulent times. Given many investors recent defensive stance, one might ask how about some real defense stocks, as in the Aerospace and Defense industry. Here are five for your consideration:

Honeywell International Inc. (HON)
The company is the world's largest maker of cockpit controls, small jet engines and climate control equipment, HON also makes industrial materials and automotive products. HON has an attractive yield of over 3.5%, but with only two consecutive years of dividend increases this defense stock misfired as a defensive stock.

Northrop Grumman Corp. (NOC)
NOC is the world's third largest producer of military arms and equipment, and also has a large government IT services business. NOC is another stock with a good yield of around 3.5%, but with only five years of consecutive dividend increases it is too early to invite it into my income portfolio.

The Boeing Co. (BA)
The company is the world's second largest commercial jet and military weapons manufacturer, and the U.S.'s largest exporter. BA has an impressive dividend yield close to 4%, but with only five years of consecutive dividend increases, I am not ready to fly solo with it.

General Dynamics Corp (GD)
General Dynamics is the world's sixth largest military contractor and also one of the world's biggest makers of corporate jets. This Dividend Achiever's stock is currently yielding a little over 2.5% and has increased its dividend for the last 15 years. I was very high on GD back when I did this analysis, but with its recent increase in share price and drop in yield, I am waiting for a more favorable entry point.

United Technologies Corp (UTX)
UTX is an aerospace-industrial conglomerate whose portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators, and Carrier air conditioners, among other products. This Dividend Achiever's stock is currently yielding around 3% and has increased its dividend for the last 17 years. See my most recent analysis.

Aerospace and defense companies that do a lot of government work usually enjoy long contracts and are in a good position to weather economic downturns. However, to varying degrees, each of the above companies also is engaged in non-government commercial business that will be more affected by the economic downturn. There is certainly a spot for aerospace and defense in my income portfolio, but I will wait for the right time and entry price.

Full Disclosure: Long UTX. See a list of all my income holdings here.

Tags: [BA] [GD] [HON] [NOC] [UTX]