Harris Corp. (HRS) recently increased its quarterly cash dividend by 10% from the first quarter of fiscal 2010. The company will now pay a quarterly dividend of 22 cents per share compared to 20 cents per share earlier. As a result, its annual dividend will also increase to 88 cents per share from 80 cents currently.

We believe the primary reason for this increment is the company’s blockbuster fourth-quarter results and growing visibility of its future business prospects. As a leading government electronics supplier, Harris benefits from the increase in US defense expenditures. It has a sustainable and diversified product pipeline with a potential market size of $15 billion. Its total order backlog at the end of fiscal 2009 was more than $6.1 billion. In the previous quarter, all the three business segments of the company received healthy order bookings. Harris reported that it had $1.29 billion new orders during the fourth quarter, an improvement of 22% over the previous quarter.

We believe that in the near term, Harris will benefit from higher defense expenditure by the US government and new expansion drives in the Asian, European and African markets. The company has established a solid international dealer network to pursue multiyear contracts throughout these regions and estimates that international markets represent around $4 billion pipeline opportunity. It recently won large-scale multiyear standardization contracts in Mexico, Australia, Algeria, U.K., Pakistan, Sweden and Iraq.

Harris also won five domestic contracts for its Public Safety and Professional Communications services. We believe the newly acquired M/A-COM will generate significant synergies for the company’s existing land mobile radio business. Integration of high-end solutions of M/A-COM will enable Harris to gain a strong foothold in the $9 billion global Public Safety and Professional Communications market.

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