Why Lockheed Martin (LMT) is a Great Dividend Stock Right Now

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Lockheed Martin in Focus

Based in Bethesda, Lockheed Martin (LMT) is in the Aerospace sector, and so far this year, shares have seen a price change of -2.73%. Currently paying a dividend of $2.4 per share, the company has a dividend yield of 2.53%. In comparison, the Aerospace - Defense industry's yield is 0.01%, while the S&P 500's yield is 1.72%.

Taking a look at the company's dividend growth, its current annualized dividend of $9.60 is up 6.7% from last year. Lockheed Martin has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.97%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Lockheed's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.

LMT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $24.13 per share, with earnings expected to increase 9.93% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LMT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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