I truly enjoy the month of January as it is usually the time when I have extra cash to fund my retirement investment account. This year, I’m adding $5,000 to my pot. In addition to this amount, I have over $1,500 that was waiting in an US index fund that I will use to buy new stocks. Instead of waiting on a pile of cash, I usually invest my dividend payouts in an index fund. This is a good method to diversify a few hundred bucks at a low cost that benefits from any market upside. I would rather do this than earn 1.25% in the money market.
Last Monday, I published a stock analysis of Gluskin Sheff (GS) and told you recently that I added this company to my dividend holdings. Today, I’m talking about another addition to my portfolio: Lockheed Martin (LMT). Once again, this is a stock that made my Best 2014 Dividend Stocks book.
Please also note that LMT is part of many of our Dividend Stocks Rock Portfolios and according to January’s results, we beat our benchmark 8 times out of 10 over the past 5 months. Take a look at what Dividend Stocks Rock has to offer.
Lockheed Martin (LMT) Business Description:
Lockheed Martin is engaged in the research, design, manufacturing and integration of advanced-technology products. It operates through 4 segments; Aeronautics, Electronic systems, Information systems & Global solutions and Space systems. In other words, Lockheed Martin is one of the biggest defence contractors in the world.
It is important to note that LMT shows 80% of its revenues coming from the US Government. In other words; if the Gov’t cuts its defence budget, chances are LMT revenues will be cut accordingly.
LMT Stock Graph
LMT surged in 2013 but it doesn’t mean that the stock doesn’t have any upside potential anymore. In fact, it is being traded at a relatively fair P/E ratio (fwd at 14.39). The reason why the stock is so high is also directly in line with its Earnings per Share growth:
When a company is making more money, it’s only normal to have a higher value!
LMT Dividend Growth Graph
When I look at the dividend growth rate of a company, I also like to look at how other metrics react. I’ve combined the dividend payouts, payout ratio, EPS along with annual revenues to see if the trend was strong. See for yourself:
Everything is pretty much going through the roof at the moment, even taking into account the US Government reducing their expenses.
The Company Ratios and Financial Info:
| Ticker | LMT |
|---|---|
| Name | Lockheed Martin Corp |
| Dividend Metrics | |
| Current Dividend Yield | 3,47 |
| 5 year Dividend Growth | 21,17 |
| 1 year Dividend Growth | 15,18 |
| Company Metrics | |
| Sales Growth (1 year) | 1,47 |
| Sales Growth (5 year) | 1,51 |
| EPS growth (5 year) | 8,73 |
| P/E ratio | 14,43 |
| P/E Next Year | 14,93 |
| Margins growth | 0,78 |
| Payout ratio | 49,65 |
| Return on Equity | 164,67 |
| Debt to Capital Ratio | 0,13 |
The company is showing a strong ability to turn its revenues into higher profits. While its revenues are growing slowly, LMT is able to both increase its profit and dividend payout. There is a strong will to keep pushing the dividend payout higher. If you hold this stock long enough, your dividend yield based on cost of purchase will soon hit 5%.
Lockheed Martin Upcoming opportunities and dangers:
LMT benefits from a leadership position while many governments feel the urge to improve their security. The diversification of its income stream is almost equally divided into their 4 segments (29%, 31%, 22%, 18%) and offers them 4 different playgrounds to provide defence products. Over 2013, they consistently beat analysts’ estimates and are already focused on consolidation projects to reduce costs. This only means more profit for the future.
The worst that could happen to LMT is a massive cut in the US budget. Since about 80% of its revenue comes from Government contracts, this remains a great risk. As we can see, sales growth is far from astonishing, but it’s the price to buy a well established company in a mature market. Overall, I still believe many countries will require defence help in the future and Lockheed Martin is definitely the leader they will turn to buy more services.
Final Thoughts on Lockheed Martin
This company has been on my radar for the past three years. In fact, each time I did my Best Dividend Stock for the year book, LMT appeared in my screeners. Why have I waited so long? Well… I guess I just didn’t have enough liquidity to buy all the stocks on sale 3 years ago!
I also like the fact that I’m adding a new sector to my asset allocation in buying an industrial stock. There is nothing like diversification to make good returns on the market!
What do you think of LMT? Is it a buy for you?
Disclaimer: I own shares of LMT.
Great pick but you waited too long to get in. You missed the stellar year LMT had. I got in at $83 and I add 3 shares a month. Great company great dividend and the US government isn’t about to shrink the military industrial complex. The world is more dangerous than ever so this company will have a sundry of orders from the likes of a South Korea! Go LMT!
Hey George,
LMT was on my watchlist last year (and part of my Best 2013 Dividend Stock book) but I decided not to go with it at that time. I’m still confident it will continue to perform well this year but I definitely missed a great run!
Good pick at $83!