A rising stock market is akin to a rising tide that can lift all boats. However, not all boats rise at the same rate. And it could be argued that some boats have not yet risen to the level they ought to be at.

For whatever reason, some are simply not as high as they should be. This discrepancy could be a massive opportunity. Finding, and taking advantage of, these opportunities has greatly aided me in my quest to become financially independent at a young age. In fact, I was able to retire in my early 30s – as I lay out in my Early Retirement Blueprint. A large part of my success has hinged upon buying the best stocks at the most opportune moments. The best stocks, in my opinion, are high-quality dividend growth stocks. These are stocks that pay reliable, rising dividends. These are world-class enterprises.

Huntington Ingalls Industries Inc. (HII) is a major American defense company, operating as the largest independent military shipbuilder. Founded in 1886, Huntington Ingalls is now an $8 billion (by market cap) military giant that employs over 14,000 people. Huntington Ingalls primarily designs, constructs, maintains, and repairs a range of nuclear and non-nuclear ships. These ships include aircraft carriers, submarines, and amphibious assault ships. The United States Navy is their largest customer, generating almost 90% of the company’s revenue. The company operates across three segments: Newport News, 60% of FY 2020 revenue; Ingalls, 29%; and Technical Solutions, 14%. A business like this can make for an excellent long-term investment, primarily because of the necessity of the products and the scarcity of competition. This speaks to why this stock has amazingly compounded at an annual rate of 21% over the last decade. It’s very simple. The US isn’t suddenly going to stop needing to protect itself via sovereign defense. If anything, sovereign defense only becomes more critical over time. And Huntington Ingalls is often competing against nobody.

For instance, Huntington Ingalls is the only builder of nuclear-powered aircraft carriers for the United States. If the US military orders a nuclear-powered aircraft carrier, Huntington Ingalls is the company that will build it. The company has already increased its dividend for nine consecutive years. Their five-year dividend growth rate is 18.6%. That astounding dividend growth comes along with the stock’s current market-beating yield of 2.25%. This yield, by the way, doesn’t just beat the market; it’s also more than 70 basis points higher than the stock’s own five-year average yield. And with a low payout ratio of 27.5%, this is a very safe dividend.

Morningstar rates HII as a 3-star stock, with a fair value estimate of $201.00. CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line. They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold. CFRA rates HII as a 4-star “BUY”, with a 12-month target price of $249.00. I came in pretty close to where CFRA is at on this one. Averaging the three numbers out gives us a final valuation of $232.08, which would indicate the stock is possibly 15% undervalued.

Bottom line: Huntington Ingalls Industries Inc. (HII) is a high-quality defense firm that powerfully benefits from providing necessary products with limited competition. With a market-beating yield, an extremely low payout ratio, double-digit dividend growth, and the potential that shares are 15% undervalued, this is a compelling long-term investment opportunity for dividend growth investors.

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