Lockheed Martin is a great dividend growth stock that dominates the defense sector. The question is…is this the perfect dividend stock to own in a recession? This article will look to answer this very question. We will review Lockheed Martin’s last earnings release, the company’s updated earnings guidance, and then run the company through our dividend stock screener!
Lockheed Martin (Ticker: LMT) is a major player in the defense and aerospace sector. Lockheed Martin’s customer base includes the U.S. Government and other foreign governments. The U.S. government’s defense budget is as large as ever. In an election year, there will be no plans to shrink the budget anytime soon. Thus, Lockheed operates in a sector that continues to spend and hand out new billion dollar contracts like candy.
One interesting note from Lockheed Martin’s earnings release is that the company has a record setting backlog. In fact, the company reported a record setting $160B+ backlog as of June 30, 2023. Lockheed benefits from the unique structure of this industry, along with high barrier of entries, to ensure successful revenue growth for the short, medium and long term!
Let’s talk about the rest of the earnings release. We covered one positive note about the backlog, now let’s see how the numbers stack up. Quite frankly, they were awesome. Quarterly net sales were $16.7 billion, up 8% from the previous year. Earnings were $1.7B and free cash flow was over $1B for the quarter. Very positive news. The one negative in the earnings release was that the company’s operating profit margin decreased slightly, from 11.4% last year to 11.1%.
In addition to the strong results, the company increased earnings guidance in its earnings release. Sales, Operating Profit, and EPS all saw guidance increases! The new ranges, compared to the old, are highlighted in the following chart.
Subsequent to earnings the company was forced to reduce its F-35 guidance due to supplier issues. Instead of 100-120 F-35 deliveries, the company is now only expected to produce only 97. A small decrease on a high sale product.
Dividend Diplomat Stock Screener
To find and analyze undervalued dividend stocks, we use 3 SIMPLE metrics to evaluate every dividend stock. The goal of our stock screener is to identify if a stock is an undervalued dividend growth stock to buy.
Watch: Our Simple, 3 Step Stock Screener
Here is a rundown of the 3 metrics of our stock screener:
1.) Price to Earnings Ratio Less than the S&P 500. Currently, the S&P 500 is trading at a P/E Ratio of 25.4X.
2.) Dividend Payout Ratio Less than 60%. The payout ratio measures the safety of the dividend. This ensures the company can continue growing its dividend during good times and bad. That’s why it is a critical metric in our stock screener that we must evaluate! We think the perfect payout ratio range is between 40% and 60%!
Read: Dividend Aristocrats with a PERFECT Dividend Payout Ratio
3.) History of Increasing Dividends. We review this metric by reviewing the company’s five-year average dividend growth rate and consecutive annual dividend increases. Since we are long term investors, it is important that a company increases its dividend consistently!
Bonus: Dividend Yield. We like to also throw in a bonus metric to our dividend stock analysis. Yield does not drive our decision; however, we would be lying if we said we completely ignore dividend yield.
See the video below, for further details and explanation. If you don’t like to watch videos – see our Dividend Diplomat Stock Screener page!
Lockheed Martin’s Results
Let’s see how Lockheed Martin performs in our screener. The stock price used in the analysis is as of September 15, 2023 close.
1.) Price to Earnings Ratio: A P/E Ratio of 15x is a very solid discount compared to the S&P 500 (25x).
2.) Dividend Payout Ratio: A Payout Ratio of 43% is perfect. In fact, it is at the low end of our Perfect Dividend Payout Ratio range of 40% to 60%. There is plenty of room for Lockheed Martin to continue growing its dividend for years to come.
3.) History of Increasing Dividends: Lockheed Martin is on the verge of becoming a Dividend Aristocrat. In fact, the company will be there within the next 5 years. Lockheed Martin is set to announce a dividend increase in September. The company has consistently increased its dividend
Read: 7 Expected Dividend Increases in September 2023
Bonus.) Dividend Yield: Now that Lockheed is down over 10% YTD, the company’s dividend yield is above 2.8%. It is crazy that their yield is closing in on 3%.
Summary
Lockheed Martin is a cash flow machine. The company continues to deliver strong results and print money. Plus, due to strong orders from the company’s top customer (the Defense Department), the company was able to increase sales guidance and build an unprecedented $160B+ backlog. In good or economic cycles, the company still needs to defend itself. That is the one fact that has proven true for decades. That is why the stock is protected well from the downside risk of a recession.
Further, the company’s stock metrics are looking excellent. The stock’s 15x P/E Ratio is trading at a great discount compared to the S&P 500. Plus, the company’s dividend growth history is excellent and the company’s perfect payout ratio will allow it to continue to announce strong dividend increases.
The company is a great potential buy for investors looking for a safe stock. If you are building your portfolio, starting a position in Lockheed would be a safe way to dip your toes into the dividend investing waters. Don’t let the high stock price intimidate you. Many platforms offer free trades of fractional shares!
At this time, we are watching the company’s stock price closely and will strongly consider buying if the stock price dips below $400 per share or the yield climbs 3%.
What do you think of Lockheed Martin? Do you think this is a perfect dividend growth stock? Are you buying at the current prices?
Bert