We recently published a list of 15 Best Dividend Stocks To Buy and Hold. In this article, we are going to take a look at where L3Harris Technologies, Inc. (NYSE:LHX) stands against other best dividend stocks to buy and hold.
In recent years, many investors have shifted their focus from dividend-paying stocks to high-growth secular-themed stocks that typically don’t offer dividends. However, history shows that investors shouldn’t overlook dividends. According to estimates by AGF Investments, the long-term case for dividend-paying equities is strong: if a dollar was invested in the broader market Index in 1927 without reinvesting dividends, it would be worth $243 today. In contrast, that same dollar with dividends reinvested would be worth $3,737.
Because of this earnings and income potential, income investors often turn to dividend stocks when the market shifts. While these stocks may not be keeping pace with the broader market, analysts remain optimistic about their future prospects. A report from J.P. Morgan indicated that global equities are approaching a notable period of dividend growth, not just due to a cyclical rise in payouts but also because of a long-term increase in dividend momentum. Over the past 20 years, global dividends per share have grown at an annual rate of 5.6%, but analysts predict this growth will accelerate to 7.6%. The main factor driving this increased growth is the low starting point of payout ratios (dividends as a proportion of earnings). During the Covid pandemic in 2020, many companies cut their dividends, leading to a 12% drop in global dividends, which was a steeper decline than during the Global Financial Crisis. This was a rational response to an uncertain environment with unpredictable effects and duration.
READ ALSO: 10 Most Promising Dividend Stocks According to Hedge Funds
However, equity markets rebounded strongly as global earnings soared, primarily driven by Big Tech and, more recently, AI. Since dividends are typically determined by conservative boards and management, they tend to lag behind earnings during significant earnings surges. As a result, dividend payout ratios are now near their lowest levels in 25 years, meaning companies are paying out less compared to historical averages. Simply returning to a more typical payout level could contribute an additional 2% annual growth over the next five years. This isn’t just a theoretical scenario—global dividend growth has already started to exceed earnings growth in seven of the past eight quarters, as reported by J.P. Morgan.
While recent market gains have largely been driven by a small group of non-dividend-paying companies, this is starting to shift. In 2024, many big tech companies initiated their dividend policies, highlighting the importance of returning capital to shareholders and positioning dividends as a complement to share buybacks. The report highlighted that although the dividend yields from these tech giants are initially modest, the total amount they are committing to dividends is significant—$17 billion collectively over the next year. More importantly, these actions send a strong signal to the market.
Income-focused investors have increasingly turned their attention to dividend income, making it a more prominent part of personal earnings. A report by S&P Dow Jones Indices reveals that dividend income has risen from 2.68% in Q4 1980 to 7.88% in Q2 2024, demonstrating its growing importance as an income source. The report further highlighted that since 1936, dividends have accounted for over a third of total equity returns, with the rest coming from capital gains.
Our Methodology
For this list, we scanned through various credible sources, including Business Insider, Forbes, Morningstar, and Barron’s, and identified their consensus picks from their recent articles. Next, we sorted these companies based on the number of hedge funds in Insider Monkey’s database that owned stakes in these companies, as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A military jetfighter against a deep blue sky with the sun behind it.
L3Harris Technologies, Inc. (NYSE:LHX)
Number of Hedge Fund Holders: 40
L3Harris Technologies, Inc. (NYSE:LHX) is an American defense technology company that operates in various segments of the defense and aerospace industries. It specializes in developing propulsion and power systems used in rockets, spacecraft, missiles, missile defense systems, and various tactical applications. The company has played a key role in several major space and missile initiatives for the US military, underscoring its importance in the industry. On January 7, the company secured a contract from the US Space Force’s Space Systems Command to create design concepts for the Resilient GPS program. This initiative aims to enhance existing satellite constellations by incorporating small satellites, strengthening GPS reliability for both military and civilian users.
In the fourth quarter of 2024, L3Harris Technologies, Inc. (NYSE:LHX) reported revenue of $$5.52 billion, which showed a 4% growth from the same period last year. Highlighting its agility and standing as a trusted disruptor in the defense industry, the company reported a record backlog of $34 billion. These results demonstrate its alignment with customer priorities, fueling strong demand across various sectors. Through the LHX NeXt initiative, the company surpassed its 2024 cost-savings target, reaching $800 million, and has now increased its overall cost-savings goal to $1.2 billion by the end of 2025, achieving this milestone a year earlier than planned.
L3Harris Technologies, Inc. (NYSE:LHX) reported a strong cash position in FY24. The company’s operating cash flow came in at $2.6 billion and it generated $2.3 billion in free cash flow. This cash position has enabled the company to raise its payouts for 23 consecutive years, which makes LHX one of the best dividend stocks on our list. The company pays a quarterly dividend of $1.16 per share and has a dividend yield of 2.19%, as of February 4.
As of the close of Q3 2024, 40 hedge funds tracked by Insider Monkey held stakes in L3Harris Technologies, Inc. (NYSE:LHX), the same as in the previous quarter. The consolidated value of these stakes is over $915 million. Among these hedge funds, Diamond Hill Capital was the company’s leading stakeholder in Q3.
Overall, LHX ranks 14th on our list of best dividend stocks to buy and hold. While we acknowledge the potential for LHX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LHX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
