General Dynamics Corp (NYSE:GD)

General Dynamics is a keen capital allocator and lone supplier key military equipment. The M1 Abrams Tank, and Strkyer System are high performance armored vehicles with long lifecycles of recurring revenue due to constant upgrades. With the Trump administration increasing military spending the Army is prioritizing modernizing its vehicles upgrading M1's to the M1A1 configuration as well as adding more gun systems to the Stryker troop transports, GD is perhaps set to benefit more than any other defense company.

Pressure from the EU on Western European countries to limit trade with Russia could spark demand for US armored vehicles, in terrain where armor assets are decisive. GD’s M1A1 is the only worldwide competitor to Russia’s T-90 tank. General Dynamics also manufactures the Virginia-class attack submarine which are still under long-term contracts, as well as every CEO’s favorite private Jet, the Gulfstream.

General Dynamics highly engineered, and high performing products, as well as the switching costs associated with the modernization efforts provide General Dynamics with a strong competitive advantage.

GD boasts strong ROE, and has a healthy balance sheet, and a strong shareholder-friendly culture. The company has grown dividends at a 10% CAGR the last five years yielding 1.9%. GD’s total shareholder yield is more impressive at 3% especially considering a FCF dividend coverage ratio of over 3X. General Dynamics currently trades at the lowest forward multiple in it’s defense peer group.

CEO Phebe Novakovic since taking over the role in in 2011, has gradually increased operating margins citing wanting to return to company to culture the described in The Outsiders -- a that book praised the Shareholder friendly nature of the company during the 1990s.

General Dynamics presents a stable dividend play that could prove timely with political tailwinds in their favor.