The company’s last dividend increase was in August 2012 when the Board of Directors approved a 12.10% increase to 37 cents/share. This was the second dividend increase in under one year. The company’s largest competitors include Boeing (BA), Raytheon (RTN) and General Dynamics (GD).
Over the past decade this dividend growth stock has delivered an annualized total return of 11.70% to its shareholders.
The company has managed to an impressive increase in annual EPS growth since 2003. Earnings per share have risen from $0.45/share in 2003 to $4.80/share in 2012. Analysts expect Harris Corporation to earn $5.16 per share in 2013 and $5.28 per share in 2014.
The company has reduced its share count from 133 million shares in 2003 to 114 million in 2012. Most of the buyback activity has happened since 2011. The company is also planning to divest its Broadcasting business segment, and utilize the cash proceeds to further repurchase shares.
Growth in government communications segment as well as recent acquisitions in integrated network solutions are expected to drive revenues for the company. Continued investment in R&D could also result in wider operating margins, which could positively affect profitability. Many Federal and local governments are expected to increase the capabilities of their communications networks, which could bode well for Harris Corporation.
The return on equity has increased from 5% in 2003 to 25% in 2012. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 26.60% per year over the past decade, which is higher than the growth in EPS.
A 26% growth in distributions translates into the dividend payment doubling almost every three and a half years. If we look at historical data, going as far back as 1999 we see that Harris Corporation has indeed managed to double its dividend every three years on average.
The dividend payout ratio declined from 35% in 2003 to 12.80% in 2007, before beginning a new uptrend all the way to 25% in 2012. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, Harris Corporation is attractively valued at 9.80 times earnings, has an adequately covered dividend and yields 3.10%. I would consider initiating a position in the stock subject to availability of funds.
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