A Good Dividend Stock Just Got Better

Back in my 20s, I was a flight instructor at a small airport in Pittsburgh, Pa. Day in and day out for almost two years, I took off and landed on Goodrich (NYS: GR) tires. So did a dozen other flight instructors at our school. I never once had a blowout, not did any of the other pilots. Granted, we weren't flying 767s, but those tires took a beating and always came back for more.

When I heard that United Technologies (NYS: UTX) purchased Goodrich, I felt a wave of nostalgia for my own personal good old days, as well as a wave of excitement for the growth potential I think this purchase will bring to an already reliable dividend stock.

Love at first flight
United Technologies is an industrial powerhouse whose product reach is far and wide. Its stable of brands on the civilian side include well-known companies Otis Elevator and Carrier, with industry stalwarts Pratt & Whitney and Sikorsky on the defense and aerospace side.

Keen on increasing its exposure to the commercial aerospace sector, United Technologies had been shopping around for an acquisition for more than a year, flirting with Rockwell Collins (NYS: COL) and even some European companies. But it's Goodrich that finally won the company's heart, and for good reason.

Any landing you can walk away from is a good one
Goodrich supplies aerospace components, systems, and services to aircraft companies in the U.S. and around the world, and it's very good at it.

Deafened by the deployment of the thrust reversers on your last flight? You can thank Goodrich for stopping your jet before it ran off the end of the runway. Happy the landing gear extended and stayed extended? (It doesn't always.) Again, you can thank Goodrich for that.

You get the picture. Goodrich doesn't make the airplanes you ride in, but it makes a lot of what goes into them. United Technologies couldn't have found an acquisition that offers commercial aerospace exposure as wide, deep, and expert as that of Goodrich.

Business is sonic-booming
Goodrich also looks attractive because business is booming:

  • Total revenue in 2010 was almost $7.0 billion, up from $6.7 billion in 2009.

  • Revenue for the last two quarters combined was $3.9 billion, putting it on track for $7.8 billion by end of year. Analysts expect the company to close out the year with $8.1 billion in sales, which would be a 16.2% jump from the previous year.

Long-term prospects for the company also look good, with plenty of business in the pipeline, including key contracts with Airbus, Boeing (NYS: BA) , and Lockheed Martin (NYS: LMT) . And with its components currently installed on airplanes the world over, there's plenty of aftermarket support business to be had, too.

There's nowhere to go but up
As I discussed in a recent column, defense cuts are coming. The congressional supercommittee that emerged from the wreckage of the debt-ceiling demolition derby has to come up with $1.5 trillion of them by Thanksgiving. Discretionary spending can't go it alone. Defense will have to take a hit.

As such, defense-stock share prices are down. Many of United Technologies' peers are trading near their 52-week lows, including Boeing, Lockheed Martin , Spirit AeroSystems (NYS: SPR) , and Alliant Techsystems (NYS: ATK) . United Technologies is currently trading for about $72 per share, just $5 above its 52-week low.

All of which makes this a perfect time to buy.

Off we go into the wild Fool yonder
Some analysts, including The Motley Fool's own Anand Chokkavelu, believe that the budget-cut fears are depressing a sector that was already discounted for future uncertainty, so United Technologies should be ripe for a rebound.

In addition, defense companies are getting lumped together in this general stock slide, but United Technologies is diversified well beyond pure defense; the Goodrich deal only makes it more so. And as orders for commercial aircraft keep rolling in, United Technologies and Goodrich stand to benefit greatly.

Finally, United Technologies already pays a healthy dividend of 2.7%, one that's been growing steadily over the past five years. This purchase of Goodrich gives it the potential for some share-price appreciation as well.

United Technologies is a good buy that just got better. Looking for more solid government plays? Read about two small-cap stocks that have solid deals with the government and have the potential to deliver multibagger returns in "Two Small to Fail: 2 Small Caps the Government Won't Let Go Broke," a free Motley Fool Special Report. Read it now!

At the time thisarticle was published Fool contributorJohn Grgurichwishes he'd flown Boeing 767s instead of Cessna 152s back in the day, but he doesn't own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Lockheed Martin.Motley Fool newsletter serviceshave recommended buying shares of Spirit AeroSystems Holdings. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has an absolutely scintillatingdisclosure policy.

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