Raytheon a proven dividend payer

The fourth Thursday in January is nearly always a big day for investors of Merrimack Valley securities. That’s because it’s the day that fourth-quarter and year-end earnings are released for many prominent (and less prominent) companies.

Today, let’s look at Raytheon Co. The global defense contractor is a well-known entity in the investment world, and thus doesn’t fit with this blog’s overall theme. But it’s such a key company in the region, employing thousands at its Integrated Defense Systems headquarters on Apple Hill Road in Tewksbury, several thousand more at its Air Defense Center in Andover and an unknown number at facility for another of its divisions in Billerica. Raytheon is pretty coy about employment counts (the overall number is slowly shrinking over time) but a good ballpark figure for the Merrimack Valley might be something along the lines of 6,000. No other public company comes close.

On Thursday morning, Raytheon reported a  fourth-quarter profit of $544 million, or $1.84 per share. Quarterly revenues totaled $6.24 billion, with earnings, adjusted for non-recurring costs, at $1.88 per share.

Long-story short, profits beat expectations calling for $1.86 per share (based on The Associated Press’ citing an average estimate of nine analysts surveyed by Zacks Investment Research) but missed the revenue forecast of $6.51 billion.

Shares were trimmed nearly 3 percent on Thursday, falling $3.97 to close at $142.90. But by 10 a.m. today they had recovered all of that. Shares have risen about 24 percent in the past year, significantly outperforming most indexes.

Raytheon has had a wonderful run over the past decade, but headwinds may finally be the order of the day, at least in terms of capital gains. But investors have also enjoyed steady dividend growth, which in my opinion has been the best reason to invest in this security — I did a blog about this nine months ago (http://bit.ly/1pBrYDb) when I was at The Sun, and to sum it up, Raytheon’s annual dividend has increased from 80 cents per share 12 years ago to $2.93 per share last year. It rarely increases the payout by less than 10 percent each year, and will likely do so again in March.

And over time, this is a big deal.  

To be clear, Raytheon is not growing, in terms of revenue (It’s been between $23 billion and $25 billion for several years now) or in terms of headcount. But it has found a way to steadily increase profits, and with that, dividends.  

This year Raytheon expects full-year earnings to be $7.20 to $7.35 per share, with revenue in the range of $24.8 billion to $25.3 billion. That puts its share price at about 20 times this year’s earnings, which is a little rich. But for long-term dividend growth, Raytheon is a proven commodity.

This is my alley…

“Invest in what you know.”

That’s what the smart ones always say, right?

Peter Lynch, pilot of the Fidelity Magellan mutual fund from 1977-90, wrote of paying attention to what stores his daughters bought their clothes and fashion accessories. He reasoned that if his daughters were appealed by a given store’s merchandise, then millions of other teenagers were as well, and that store would likely be a worthy investment. He scored big by getting in early on fickle retailers such as Gap and Claire’s, among many others.

Billionaire Warren Buffett, for his part, stresses investing in businesses that are simple — i.e, easy to understand. He made his ample fortune on products we use every day — Gillette, Coca-Cola, American Express, to name a few.

So I’m all about investing in what you know. But what do I know? Well, after serving as business editor at The Sun in Lowell, Mass., for the better part of 20 years, I know a lot of public companies, large and small, that form about a 30-mile radius from Lowell. And while analysts aplenty follow such entities as Raytheon, EMC and State Street Corp. on a regular basis, few can tell you what a great investment Lowell’s Enterprise Bank has been over the last few years. Its shares closed today at $37. Did you know that you could have bought them for less than $20 just two and a half years ago? Why? Well, the (local) economy is better, and that almost always benefits a bank. And Enterprise has experienced impressive organic growth coupled with prudent expansion by adding, say, one additional branch office per year.

Or how about Chelmsford’s Mercury Computer Corp., which makes clustered computer systems for the military and commercial applications?  Shares of Mercury closed today at $33.39. You could have had them for half that only a year and a half ago.

I’ll give you one more: UniFirst Corp., a provider of workplace uniforms and corporate laundry services out of Wilmington, Mass. Its shares closed today at $130.05. Five years ago, they were less than half that? Was it due to the exposure that CEO Ronald Croatti got from his appearance on TV’s “Undercover Boss”? I suppose that didn’t hurt, but a more likely contributor is the fact that the nation’s unemployment rate has plummeted. More people at work means more uniforms to provide — and to wash.

It’s stories like these that I will share here (and hopefully, in most cases, before big upside moves are made) and that’s why we’re calling this space Wall Street Alley. An alley is a side street, a turn-off from a main thoroughfare. The companies we will be looking at here are those that reside in one of countless alleys — in this case, the alley that is the Merrimack Valley. We’ll also dip our toes into Southern New Hampshire and points west, including the Twin Cities of Fitchburg and Leominster, Mass.

Happy Investing.