Revisiting Lockheed's Dividend Growth

| About: Lockheed Martin (LMT)

Lockheed Martin (NYSE:LMT) recently announced its annual dividend increase. The company's website says this is the 10th consecutive double-digit dividend increase. Pretty impressive, as not many companies have managed to do the same.

This article, written back in June compared the three major defense stocks, including Raytheon Company (NYSE:RTN) and The Boeing Company (NYSE:BA), and concluded LMT is the place for dividend growth investors. This recent increase has justified the claim. As done in some recent exercises, let us recheck the dividend story after an increase.

  • New Dividend: The new dividend of $1.15 per share will begin from the December 2012 payout and in all likelihood last till the August/September 2013 payout.
  • Current Yield: So, the $4.60 dividend per year gives LMT a current yield of almost 5%, based on its recent share price of about $93. This yield is slightly higher than the 4.7% in the original article linked above. This is in spite of an increase in share price from $84 to $93.
  • Dividend Growth Rate: The five-year moving average dividend growth has slowed down a bit to 22%, from the 24% mentioned in the previous article. Five years is usually used as the "basic" minimum for a company to be considered in the dividend growth category. So, it makes sense to update the dividend growth rate as well, as new data becomes available.
  • Payout Ratio: The payout ratio has slightly edged up to 53%, based on current earnings per share of $8.60. This is slightly higher than the exact 50% it had at the time of the last writing.
  • As done in the previous article on YUM! Brands, Inc. (NYSE:YUM), the table below assumes a 10% dividend growth rate for the first five years and then slows it down to 8% for the last five years. That still produces impressive results because of the current high yield.

Click to enlargeClick to enlarge

  • Cash on hand: As the chart shows below, LMT's cash on hand has generally been growing year on year for the past five years. The payout ratio might seem a bit high at 50%, especially compared to its peers, but the cash, plus the expected earnings growth of about 7%, should comfort investors about this stock's ability to pay increasing dividends.

Click to enlarge


Conclusion: The recent dividend increase has strengthened our belief that LMT is the best defense play for investors who seek a growing income stream, handily beating Boeing and Raytheon's dividends. Further, this report says that the recent increase might set a floor to the stock price at $90, which is good news for investors.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LMT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.