Lockheed’s 4.8% Dividend Yield: Top Gun in the Defense Sector and Well-Covered
Over the past couple years, defense contractor stocks – normally resilient because of giant, multi-year Pentagon programs that march on, regardless of economic ups and downs -- have substantially underperformed the S&P 500. The reason? Expectations that the federal budget crisis, finally, will force a reduction in military spending.
As their stock prices have declined, the big defense players’ once modest dividend yields have grown more significant. Among the group, there’s one yield that particularly stands out: Lockheed’s (LMT) 4.82%. That’s courtesy of a 33 percent dividend increase the company announced late last year, marking the ninth consecutive year of double-digit percent dividend hikes at Lockheed.
With just over 322 million shares outstanding, Lockheed’s current $4 annual dividend should cost the company about $1.3 billion this year. An aggressive share-repurchase effort ($2.4 billion in 2011 buybacks) makes a claim on Lockheed’s cash, and pension funding tugs periodically at cash flow as well.
Bottom line, Lockheed’s shares may remain under pressure from Pentagon cost-cutting – but its dividend is very appealing for income investors. And the company’s dependable cash generation suggests coverage won’t be a problem.
Of course, when yield chasers like us buy shares on the basis of their income potential, we’re also buying the underlying stock. So be sure to study the fundamentals, and read through the 10-K, of any company you’re considering.
Filed under: Company Analysis