What is the dividend payout for RTX?

The aerospace and defense giant RTX (RTX 0.42%) it has a sustainable dividend and plenty of potential to grow it. The company offers exposure to the cyclical aerospace sector alongside the stability of the defense sector. It’s a compelling combination because each part of the business can support the other when it needs cash flow to support investments in long-term growth.

RTX’s sustainable dividend

In a show of confidence in its long-term prospects, management raised its quarterly dividend from $0.63 per share to $0.59 per share in early May. Annualizing this dividend means an annual dividend of $2.52 per share. Meanwhile, management’s full-year guidance calls for $5.35-$5.45. As such, RTX plans to pay out around 47% of earnings as dividends in 2024.

Dividends from a cash flow perspective

Free cash flow (FCF) also represents capital investment and represents the cash flow available to make share buybacks and dividends. It’s probably a better way to look at dividend coverage. Yet again here, RTX seems to have a well-covered dividend.

Management expects $4.7 billion in FCF in 2024. Using the dividend of $2.52 per share and the $1.33 billion share count at the end of the second quarter, the annual dividend will cost about 3.56 billion USD in cash. This implies a FCF payout of 76%.

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While that number seems high, Wall Street analysts forecast FCF of $7 billion in 2025 as the company works through the cash-flow impact of dismantling and inspecting aircraft engines to ensure there are no issues with potential coating contamination of dust from the turbine discs.

Either way, RTX’s dividend is safe and likely to grow in line with management’s plan to return $36 billion to $37 billion to shareholders by 2025 from the 2020 merger.