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Lockheed Martin: Strong Q2 2020 Results Help To Maintain My Buy Rating

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Kody's Dividends


  • Lockheed Martin's payout ratios through Q2 2020 remain very sustainable at 40.4% of diluted EPS and 35.3% of FCF and provide plenty of room for future dividend growth.
  • Lockheed Martin delivered 12.4% YoY revenue growth from Q2 2019 to Q2 2020 and 15.8% YoY diluted EPS growth from Q2 2019 to Q2 2020.
  • Along with its strong liquidity, LMT is capable of being a great, long-term investment if shares are acquired at or below fair value.
  • Fortunately, shares are trading near fair value despite the 7% run-up in the share price since I covered the stock last month.
  • Between its 2.5% yield, 7-8% annual earnings growth, and 0.4% annual valuation multiple expansion, Lockheed Martin is positioned to meet my 10% annual total return requirement over the next decade.

A true measure of whether a stock is worthy of consideration for a dividend growth investor's portfolio lies not only in how a company performs in a stable operating environment, but also how a company performs in an uncertain operating environment.

One company that has delivered strong operating results in a stable operating environment, and more recently in the uncertain operating environment, is Lockheed Martin (NYSE:LMT).

As I'll discuss below for the first time since last month, Lockheed Martin's safe dividend with high-single-digit growth potential, solid Q2 2020 operating results and strong balance sheet, in combination with its attractive stock price relative to my estimated fair value prompted me to reiterate my buy rating for shares of the stock.

The Dividend Remains Safe And High-Single-Digit Growth Potential Is Intact

While Lockheed Martin's yield of 2.53% is relatively close to the S&P 500's yield of 1.82%, I will nonetheless be evaluating the EPS and FCF payout ratios through the first half of 2020 to determine the extent of its dividend safety and further determine the growth potential of the dividend going forward.

Starting with Lockheed Martin's diluted EPS, the company delivered $11.87 through the first half of FY 2020 against dividends/share of $4.80 paid out during that time for a diluted EPS payout ratio of 40.4%.

Compared to the $11.00 of diluted EPS through the first half of FY 2019 and dividends/share of $4.40 paid out to this time last year, Lockheed Martin's payout ratio is essentially in line with where it was a year ago.

Moving to FCF, the company generated $4.496 billion in operating cash flow through Q2 2020 against $636 million in capital expenditures for total FCF of $3.860 billion.

Against the $1.364 billion in dividends paid out during this time, that equates to an FCF payout ratio of 35.3%.

This article was written by

Kody's Dividends profile picture
Hi, my name is Kody. I run Kody's Dividends. As you might guess, this is a blog primarily documenting my journey towards financial independence using dividend growth investing as the means to transform the dream of financial independence into a reality.I am forever indebted to this community because it helped me transition from simply being an investor to being a full-time analyst beginning in June 2021. Aside from my five to six articles a week here on Seeking Alpha, I am also a contributor to Dividend Kings and iREIT on Alpha.

Analyst’s Disclosure: I am/we are long LMT. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

China's sanction is a non-issue even with rare earth, Australia can pick up the slack.
Kody's Dividends profile picture
Happy Penguin,

I agree with that assessment. While there may be minor supply chain issues in the short-term if China does impose sanctions, rare earth rich nations like Australia could offset those sanctions.
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