Five Dividend-paying Defense and Aerospace Investments to Purchase Amid Wars

Five dividend-paying defense and aerospace investments to purchase amid wars feature two under-the-radar stocks and three industry funds.

The five defense and aerospace investments to purchase amid wars include a pair of stocks that serve important roles in helping to defend freedom amid Russia’s ongoing invasion of Ukraine that began in February 24, 2022, the war in the Middle East started when Hamas militants attacked and murdered civilians in Israel on Oct. 7 and other military conflicts. Even though the S&P 500 is setting record highs, these five defense and aerospace investments have not climbed stratospherically.

The first of the five defense and aerospace investments to buy is one that went bankrupt early in its existence due to extraordinarily high costs, cumbersome user equipment and regulatory delays that left it stuck at the start line as mobile phone services surged. However, financial restructuring became a lifeline for tapping the company’s potential without the albatross of insurmountable start-up expenses, charges of up to $7 a minute for voice service and a Super Bowl television advertisement that bombed when a deluge of viewers interested in the service called to subscribe but only a fraction of the queries could be answered.

Five Dividend-paying Defense and Aerospace Investments to Purchase: Iridium

Iridium Communications (NASDAQ: IRDM), of McLean, Virginia, is a satellite services operator for the U.S. Department of Defense (DoD) and other users catered to by a constellation of 66 spacecraft in low-earth orbit (LEO) at a height of approximately 485 miles, or 780 kilometers. The initial version of the company initiated service on November 1, 1998, as Iridium SSC, then later exited bankruptcy and ultimately launched a replacement constellation called Iridium NEXT, while saving money in putting its satellites in orbit with the advent of reusable rockets from providers such as SpaceX.

Investors who like to buy stocks at bargain prices might take an interest in Iridium, since its shares incurred heavy selling after Qualcomm Inc. (NASDAQ: QUAL), a wireless products company headquartered in San Diego, California, recently ended a fledgling partnership between the pair that was begun in December 2022. Both pricing of the product and the technology likely factored into the break-up, wrote Louie DiPalma, a technology analyst with Chicago-based investment firm William Blair, who has an “outperform” rating on Iridium.

Chart courtesy of www.stockcharts.com.

“Qualcomm conveyed to us that even though the Iridium service was functional and available for smartphone manufacturers to incorporate in their phones, the smartphone manufacturers did not have a line of sight on the monetization models,” DiPalma wrote in a recent research note. “This implies that smartphone manufacturers were concerned about the economics and were objecting to the price Qualcomm was charging. Secondly, Qualcomm told CNBC in a statement that smartphone manufacturers preferred a standards-based satellite solution instead of Iridium’s proprietary solution. Others in the industry are developing standards-based satellite connectivity solutions for smartphones.”

Iridium executives indicated at a meeting with industry analysts that it is exploring the addition of 5G standards-based connectivity to its satellite network, DiPalma wrote. The handoff between cellular and satellite connectivity is simpler using 5G standards, he added.

Five Dividend-paying Defense and Aerospace Investments to Purchase: Life After Qualcomm

While the Qualcomm partnership could have given Iridium significant growth potential, the satellite company still has 500 other distributor partners that include Garmin (NYSE: GRMN), General Dynamics (NYSE: GD), Boeing (NYSE: BA), Honeywell (NASDAQ: HON), Collins Aerospace, Caterpillar (NYSE: CAT) and the DoD. Those partners have put Iridium’s free cash flow (FCF) — the money left after paying operating and capital expenses (capex) — on pace to reach $2.32 per share this year, up from $1.46 per share in 2020, DiPalma added.

“FCF is set for another strong year in 2024 with capex coming down,” DiPalma said. “Iridium also may pursue other partnerships in the smartphone ecosystem,” he added.

Although the smartphone catalyst of the Qualcomm partnership has been removed, Iridium remains a steady free cash flow (FCF) generator, DiPalma wrote. Even though the dissolution of the joint effort occurred, Qualcomm and Iridium spent considerable time co-developing the service. But it became apparent in October 2023 that Iridium was not going to be integrated into Samsung’s marquee Galaxy S24 phone that is set to launch in January.

“The stock was hit hard, due to the fall through of a deal with Qualcomm,” said Michelle Connell, president of Dallas-based Portia Capital Management LLC. “I think its tech is sound. The CEO must feel the same; he bought about $1 million in shares after the Qualcomm announcement.”

Michelle Connell heads Portia Capital Management LLC.

Plus, Cathie Wood, chief executive officer of Ark Investment Management LLC, of St. Petersburg, Florida, recently ranked Iridium as one of her favorite stocks. Wood is known for focusing on technology stocks that have strong potential. She calls such companies disruptive innovators.

Paul Dykewicz interviews Cathie Wood.

Bryan Perry, who heads the Cash Machine investment newsletter and the Micro-Cap Stock Trader advisory service, recommends an Iridium rival that has jumped 47.69% since he advised buying it two months ago. Perry is averaging a dividend yield of 11.14% in his Cash Machine newsletter but is breaking out with his Iridium rival recommendation in his Micro-Cap Stock Trader advisory service.

Bryan Perry heads Cash Machine, averaging an 11.14% dividend yield.

However, Connell prefers Iridium between the two stocks, especially since its share price is rising again after dropping in the aftermath of the partnership breakup with Qualcomm. It is far better for investors to buy shares in a company after bad news than before it.

Five Dividend-paying Defense and Aerospace Investments to Purchase: Iridium’s Guidance

Iridium’s Chief Financial Officer Ken Levy offered the following guidance that backs up the favorable outlook about the company by DiPalma and Connell.

• • Iridium unveiled its long-term growth outlook in September (at its Investor Day) — with guidance calling for $1 billion in Service Revenue by 2030 and the capacity to return $3 billion in shareholder returns during this period (2023-2030).
  • Iridium’s growth over the next seven years will be driven by more than a half-dozen factors, including IoT and Personal Satellite Communications, Satellite Voice Services, New Midband Functionality, Growth in Government Services and Direct-to-Smartphone… to name a few.

• The company also continues to win new U.S. government contracts. In April 2022, it was awarded a seven-year pact with the Space Development Agency (as a subcontractor for General Dynamics) to drive its Engineering & Support revenues to a record level in 2023.
• Iridium was also awarded a five-year contract by the U.S. Space Force for Iridium Certus services as part of a U.S. Proliferated Low Earth Orbit (PLEO) Satellite-Based Services award.

Five Dividend-paying Defense and Aerospace Investments to Purchase: Motorola

Another military and government technology stock that DiPalma gives an “outperform” rating is Chicago-based Motorola Solutions Inc. (NYSE: MSI). Motorola announced on Dec. 18 that it is buying IPVideo, the creator of the HALO Smart Sensor, for an undisclosed price. The acquisition complements Motorola’s physical security offerings by adding a non-video detection product to the company’s capabilities.

In the past five years, Motorola has made 13 acquisitions in the video and access control space. The HALO Smart Sensor product has multifunctional capabilities such as vape detection and air quality monitoring, gunshot detection, abnormal noise detection and more, DiPalma continued.

“Because the sensor does not possess a video function, it can be placed in areas such as restrooms, classrooms, hotel rooms and hospital rooms,” DiPalma wrote. “The HALO product also possesses other functions such as the HALO Cloud, which provides an online dashboard for monitoring and tracking, integration with third-party systems and real-time notifications to mobile devices via SMS and/or email.”

In addition, Motorola has an integrated bundle for the education market branded as Orchestrate that includes video systems, radio connectivity, RAVE panic button alerts and workflow software. HALO is a natural fit into Orchestrate, making Motorola’s education offering even stronger.

Five Dividend-paying Defense and Aerospace Investments to Purchase: Valuation Matters

Motorola trades at 25 times the forward-year (2024) earnings per share (EPS) estimate, which is a premium to its 21 times February 2020 pre-pandemic multiple and a slight discount to its November 2021 peak multiple of 27 times, DiPalma assessed. Record demand for public safety communications, video security and command center software should drive long-term EPS growth in the low double-digit percentages when taking into account organic growth, acquisitions and stock buybacks, he added.

The annual stock return should at least match EPS growth, DiPalma said. He opined that the primary risk to Motorola shares is valuation multiple compression, if its revenue growth slows.

Chart courtesy of www.stockcharts.com

Five Dividend-paying Defense and Aerospace Investments to Purchase: Baron Focused Growth

A third investment that offers exposure to Iridium and other defense and aerospace stocks, among sectors, is the Baron Focused Growth Fund (NYSE ARCA: BFGIX). Roughly 3% of the fund consists of shares in Iridium. The fund’s second-largest holding is privately held SpaceX, a provider of satellite services and reusable launch vehicles that have dramatically cut the cost of putting spacecraft into orbit compared to expendable boosters that perform just one mission.

The fund is managed by Ron Baron, founder and chairman of Baron Capital in New York, and his son David Baron. Baron Capital is known for buying and holding stocks for the long term, with an emphasis on the capabilities, innovativeness and the commitment to excellence of management teams.

Paul Dykewicz meets with Ron Baron in New York.

Aerospace and defense stocks account for the fourth-largest segment of the fund’s holdings, behind automobile manufacturers; hotels, resorts and cruise lines; and financial exchanges and data.  The Baron fund has jumped 28.46 in the past year, 9.94% in the past three months and 8.07% in the last month.

Chart courtesy of www.stockcharts.com

Five Dividend-paying Defense and Aerospace Investments to Purchase: XAR

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Military Demand Soars after Russia and Hamas Wage War

The U.S. military must adopt innovation, speed up implementation of technological advances, tap the talents of people in various industries and increasingly collaborate with private industry and international partners to maximize its effectiveness, the U.S. Joint Chiefs of Staff Gen. Charles Q. Brown Jr. told attendees of a recent national security conference. The raging wars in Ukraine and the Middle East are prime examples of the need.

The surprise Oct. 7 military attack by Hamas on Israel that started an ongoing war in the Middle East and Russia’s February 2022 invasion of neighboring Ukraine show how suddenly peace can be broken by aggressors, requiring rapid and effective response.

“The Department of Defense is doing more than ever before to deter, defend, and, if necessary, defeat aggression,” Gen. Brown said on Nov. 16 at the Johns Hopkins University conference.

Chairman Joint Chiefs of Staff Gen. Charles Q. Brown, Jr.
Photo By: Benjamin Applebaum

The security landscape can change in an instant, Gen. Brown said he quickly learned since taking his post on Oct. 1.

“We may not have much warning when the next fight begins,” Gen. Brown said. “We need to be ready.”

Hamas Attack, Hostage Taking and Murders In Israel Trigger Massive Disruption to Daily Life

The Oct. 7 Hamas attack killed 1,200 people in Israel, and involved the kidnapping of 240 others who were taken to Gaza by armed gunmen to be held as hostages. The act of terror spurred the call up of approximately 360,000 reservists to the Israel Defense Force (IDF). That number composes more than 5% of Israel’s Jewish population of 7.14 million people. Already more than 500 members of the IDF have given their lives in the newest fight for Israel’s survival and defense of its democracy.

The war that Hamas triggered with Israel also has hamstrung some of the Israeli companies that are followed in Gilder’s Private Reserve advisory service. One company was in the midst of completing critical tasks when the Hamas attackers struck on Oct. 17.

That company’s co-founder and chief executive officer mentioned that much work is required between offering a free beta test essentially for private use, before launching commercial service when fees will be charged, and the reputation of that business will be at stake. The latest edition of Gilder’s Private Reserve advisory service, led by technology futurist George Gilder, estimated that the still-private company’s progress will be delayed roughly for a full year due to the disruption of daily life stemming from the Hamas attack and need for reservists to enter Gaza to defend Israel’s security interests.

Paul Dykewicz talks with George Gilder, who tracks pre-public companies in Gilder’s Private Reserve.

The human toll of the war has been huge. Gaza’s Health Ministry reported that it has documented 20,057 deaths in the fighting and more than 50,000 wounded, as of Dec. 22. Those numbers do not differentiate between combatant and civilian deaths.

Israel’s aggressive response has drawn international criticism due to the heavy loss of life in Gaza. But Israeli officials reported exposing the center of a vast underground network of tunnels on Dec. 20 that is used by Hamas to move weapons, militants and supplies throughout the Gaza Strip. Israel’s leaders have said that destroying the tunnels that facilitated the Hamas attack, murder, raping and kidnapping of Israeli civilians on Oct. 7 is a major objective of the offensive.

Not all hope is lost for curtailing military action, since the top leader of Hamas arrived in Egypt this week for talks about a temporary cease-fire and a possible new exchange of hostages taken from Israel for Palestinian prisoners held in Israel. More than a hundred of the hostages taken from Israel were freed during a week-long cease-fire in late November, along with far more Palestinian prisoners released by Israel.

Investors need to beware of the political risks in the world, but the five defense and aerospace investments to purchase amid the raging wars currently look to offer places of financial refuge. 

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Attention Holiday Gift Buyers! Consider purchasing Paul’s inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases or autographed copies! Follow Paul on Twitter @PaulDykewicz. He is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper, after writing for the Baltimore Business Journal and Crain Communications.