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of Dow Jones Industrial Average, or the Dow, is an index comprised of 30 prominent companies on the American exchange. It has been widely covered and is considered an indicator of the overall health of the U.S. stock market.
Want to beat the Dow?Defense and aerospace companies lockheed martin (LMT 2.22%) We’ve made it look easy over the years.
What’s the secret? Huge cash dividends are a key element to Lockheed Martin’s success. Do you want to continue?
The evidence says:
Investment in America’s National Defense
Lockheed Martin designs and builds weapons systems for land, sea, air, space and cyber applications. The company’s famous products include the Apache and Blackhawk helicopters, the F-35 Lightning II jet, and the Javelin mobile missile system.
While we can’t invest directly in the US military, Lockheed Martin is a great alternative. The company derives more than 70% of its revenue from the US government. Most of it comes from the Department of Defense.
As U.S. defense spending goes, so does Lockheed Martin.
US government defense spending and forecast data from YCharts
Government spending may retreat from time to time, but protecting the United States and its interests will always be costly, and spending will only increase over time.
Strengthen your portfolio with rich dividends
Dividends can be significantly undervalued, so check their impact. Lockheed Martin outperformed the Dow on price alone. However, dividends contributed more to stock returns than share price growth.
LMT Total Return Price Data by YCharts
Lockheed Martin remains a great dividend stock. The company has continued to increase dividends for 21 consecutive years. Over the past five years, dividends have increased by an average of 8% per year. Add in the company’s current dividend yield of 2.7%, and it’s a solid combination over the long term.
Lockheed Martin’s payout ratio is currently just 52%, giving management room to increase it in the future. Management uses excess cash flow to buy back stock and drive earnings growth.
Will there be anything more in the future?
Lockheed Martin is well positioned for growth into the future. The company’s F-35 aircraft program has grown to more than a quarter of Lockheed Martin’s total revenue, and it still has a lot of life left in it. The Pentagon has about 450 F-35 jets in its fleet and plans to acquire about 2,500 over the next few decades.
The F-35 has come under scrutiny for delays and cost overruns, but current geopolitical tensions have increased interest in the program from some U.S. allies such as Germany and Canada.
These aircraft are very expensive, but Lockheed’s real money comes from years of maintenance and service revenue. The total estimated value of this program is approximately $1.7 trillion. Analysts have raised their long-term growth forecasts for Lockheed Martin starting in early 2023.
LMT EPS LT Growth Forecast Data by YCharts
Meanwhile, the company’s stock trades at 17 times forward earnings, a satisfactory valuation for a company with earnings growth of 9% and a dividend yield of nearly 3%. Patient investors willing to watch Lockheed Martin continue to grow its profits and shower it with dividends have a solid chance of outperforming the Dow Jones for years to come.
Justin Pope has no position in any stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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