Martin Marietta's enduring optimism

Donald Saltz

August 14, 1992|By Donald Saltz

The most profitable company in Maryland is pleasing its stockholders at a time when one might think those same shareholders would be concerned about the firm's immediate future.

The company, Bethesda-based Martin Marietta, is one of our country's largest defense contractors and collects nearly three-quarters of its sales from the defense sector.

Martin Marietta makes such items as the Titan rocket, underwater radar, and night-vision equipment -- but it's an area of business that is being reduced nationwide.

Dividends despite cutbacks

Despite the cutbacks, Martin Marietta recently boosted its dividend a healthy 12 percent, to an annual rate of $1.68 from $1.50.

At the same time, the company said it would buy back up to 8.2 million of its shares on top of a previous plan to acquire 7.2 million shares.

Those reassuring buybacks make the statement that the shares are a good value. If the firm does buy back all of this stock over a period of several years, the number of shares currently outstanding -- 47.2 million -- would be reduced by nearly one-third and will have the effect of sharply increasing earnings per share.

Martin Marietta Chairman Norman Augustine calls the share buybacks and regular dividend increases the firm's "peace dividend strategy." As for dividends, Marietta has now raised its annual payout for 21 consecutive years.

Martin Marietta's net profit rose moderately in both quarters this year, but operating earnings -- before interest expenses and taxes -- were much stronger, which was especially reassuring to its shareholders.

Stable as corporate profits get

Martin Marietta's earnings are about as stable as corporate profits get -- in the past four years, the company earned from $5.82 to $6.52 a share annually.

The stock, priced now in the mid-50s, sells for between 8 and 9 times earnings.

Yesterday, the company was defeated in its bid to buy the aerospace and defense businesses of the bankrupt LTV Corp. for $440 million.

The concept of acquiring other companies' defense business is one way of maintaining and boosting sales at a time when America's overall defense budget is being reduced.

Mr. Augustine says Martin Marietta is winning 60 percent of the contracts it seeks, a percentage well ahead of competitors.

That rate well exceeds the norm for defense or other businesses.

And while Martin Marietta is regarded as a major defense contractor, it earns well in other areas such as its Energy Systems, which manages a number of Department of Energy facilities, and its aggregates business -- stone, sand and gravel.

Companies with rising dividends

Dividend growth is vital.

Investors should keep tabs on individual companies' rates of dividend increases and the continuity of those increases. It's been mentioned here before that McCormick & Co. has tripled its payout in five years to a yield of 8 percent on the price of shares bought five years ago.

There are others.

Procter & Gamble, now the parent of the Noxell Corp., is a regular booster of dividends, raising the payout every year.

The dividend increases tend to elevate share prices so the yield will not increase if share prices rise in tandem with the dividend increases.

In P&G's case, the current yield stays in the 2 percent to 3 percent range but the payout is almost four times as large as it was nine years ago.

It's simply that the share price has gone up comparably.

Just six years after T. Rowe Price Associates went public its original modest dividend is now providing a 6 percent yield on the initial price.

A regularly raised dividend is a good reason for buying a stock, if continuity of dividend increases appears likely.

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