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Why I Put 8% Of My Money In Lockheed Martin

Dec. 05, 2021 5:50 AM ETLockheed Martin Corporation (LMT)126 Comments


  • Lockheed Martin has an 8.2% weighting in my portfolio as I consider it to be an excellent dividend growth stock.
  • The company has a high yield, an attractive valuation, and plenty of free cash flow to hike dividends.
  • Current headwinds are supply chain issues, which offer us the opportunity to buy.

F-22 Stealth Jet Fighters fliegen bei Sonnenuntergang über nebelverhangenen Bergen

guvendemir/iStock via Getty Images


In August, I wrote my most recent article covering defense giant Lockheed Martin (NYSE:LMT). Since then, a lot has happened in the world and Lockheed has underperformed the market caused by supply chain issues

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Comments (126)

banmate6 profile picture
I have similar thoughts. I put z$16k into LMT about 1 year ago. Explaining my thinking here, with some details: www.reuters.com/...

This has produced a 4.58% return, losing to the S&P500, but at least staying with inflation. Like the author, I expect to beat the SP500 however. I am prepared to pick up more.

LMT is a defense, robots, AI, and space company. Too big to fail. Seems like at least fair value right now given the PE compared to longer term PEs.

I get that defense can sort of cycle, based on budgets and politics. Yet looking at history, I'm not really seeing any long cyclicality. 1-2 years isn't long to me, as I typically have a 4-5 year window to see if an established company can revert to higher selling norms.

Any thoughts on the cyclicality factor here?
I realized that undervalued stocks are much more rewarding than hot but expensive stocks for 2 reasons:
1. The impact of market correction will be less severe when the stock is already "cheap".
2. We can make a large sump of money into these stocks and wait for great return. LMT is my ONLY investment! Yes, it is true that the total return is only 10% since I got in at $368 and keep adding until $327 (average cost basis is $354). However, my entire net worth went up 10%. This 10% can be the return of:
50% on stocks that are 20% of my portfolio
100% on stock that is 10% of my portfolio
200% on stock that is 5% of my portfolio
1,000% on stock that is 1% of my portfolio

I had thought carefully before I put all of my portfolio into LMT. AAPL and LMT are leading companies in their industries, but LMT is much safer than AAPL, at least for now. The same thing can be said about index funds such as SP500. The great thing about LMT is the fact that its stock is valued based on the assumption that "future" budgets will be reduced. I can make similar argument for AAPL that "future" demand of iPhone will be lower.

So, looking at the valuation and the backlog of LMT back in Oct 2021, I decided to go all in because of 3 reasons
1. My cash will be burnt by inflation if I hold it in the bank to wait for the next correction
2. SP500 is too dangerous, just like AAPL, AMZN.
3. LMT is cheap! So, if I buy LMT now and patiently wait for 2,3 years, I am more than likely to see 50% total return in capital, and comfortable dividend yield. And you know, 50% after 3 years is 15% annualized return, already better than the SP500.
banmate6 profile picture
@American Dream Comes True

Interesting take. I agree reading LMT being at value, safety, and eventually beating the S&P500. But I still like to be diversified and there are decent stocks out there that I have accumulated with similar thinkiongt: TSN, CVS, INTC.

We're already in a massive tech correction, even bear. Look at DOCU, SHOP, and so. But AAPL and MSFT are different, mega-caps still growing at extreme rates. Together they are ~$550 k in value from a basis of $23k and $11k on 30% and 20% CAGR respectively.

I won't buy them at still high PEs, but I will hold because they probably will normalize gracefully. Accelerating the E in PE. I will probably add more to LMT...also bought NOC as well.
banmate6 profile picture
@American Dream Comes True

One more note. LMT languished from 2012-2016. Revenue slightly declined. Then cycled up for many years. So there can be cyclicality.

But if so, 4 years is nothing to accumulate and reinvest dividends. Again, I'll add more for sure. Moreover, I doubt we go into a down cycle, maybe one of slightly increasing growth.

2008 punched us hard. Defensive threats were contained. Now we have GDP growth, with Russia and China advancing technologically, growing more confident challenging the USA. LMT is needed, among other companies, to stay strong.
Thank you Leo.

Why has LMT been in the doghouse relative to NOC on a 10, 5, 3, and 1 year basis?

Is there a sentiment that development of the advanced fighter jet (manned) obsolete compared to drone (remote) capabilities?
Leo Nelissen profile picture
@Jeff McGinn My pleasure! I believe because of the F-35 program. NOC has more growth opportunities in space and even in aviation.
Chris Lau profile picture
Rivian makes 10 trucks a year: 100B market cap

Lockheed Martin makes 139 of the most advanced fighter in the world that each cost 100M and sold to 14 countries: 90B market cap.

Yea, that makes sense to me.
Shaduc profile picture
@Chris Lau there was a video: Georgia [I think] would train workers for

Steve Kean profile picture
@Chris Lau they heard you. Market cap of Rivian down to $76B. Might go down to $50B if not more in coming months.
Chris Lau profile picture
@Steve Kean The bad news for them is my bearish short ideas work out over 12-18 months (includes WISH, CLOV). I had also hoped RIVN would bounce back (i have followers who went long).
vhild profile picture
10 Dec. 2021
Finland just decided to buy 64 planes. Maybe I should buy too (more stock).
Leo Nelissen profile picture
@vhild Yes. Buy more. Never a bad decision
@vhild Even better if you ordered the 64 jets also.
Great article and analysis.
IrM21, I don’t think the threat in the Middle East has lessened. It is this administration’s foreign policy( or lack of) that is different. In evaluating what is important, you just can’t assume because the news outlets are highlighting the Ukraine threat, the others have gone away. Recall that this administration is trying to get a deal with Iran so that threat is not prominently in the news. Also, given the debacle in Afghanistan the focus on the presidential action and relatively tough talk is getting big coverage from the media. I think all of our adversaries are testing and probing our resolve and leadership. As hard as this is to say, I believe a nuclear armed Iran is potentially a bigger threat to world peace than Russia’s potential annexation of Ukraine. Hopefully neither will happen.
I’ve been long LMT about 15 months and may add more while waiting for the price appreciation, thought to be as much as 80% by 2025.
Thanks for this informative analysis. I was intrigued by your point on "LMT outperforms the market in times of falling economic growth." I did a quick calculation of the correlation coefficient between S&P 500 and LMT for the past 10 years, which turned out to be 0.87. This was not exactly the hedge against the broader market I had expected. Any thoughts?
Leo Nelissen profile picture
@Cozyhilly It's not a hedge. It only applies in certain economic times. An easier way to put it is that LMT outperforms when cyclical stocks suffer. I hope that makes sense. Thanks for stopping by!
NATO will not come to Ukraine’s defense. I don’t see the present administration doing so either. What is more likely is more economic and diplomatic pressure. Whether Putin cares or will be restrained by such measures is problematic . Had this administration not permitted the pipeline from Russia to Germany to resume and maintained our domestic oil and gas output, there might be a different outcome, but as of now, not sure whether economic sanctions are effective enough to restrain Putin. Let’s hope they are.
@Old Wizard
The best thing Ol’ Puddin Head could do now is to threaten Putin with going back to the Orange Man’s stance . . . . . . Drill Baby Drill!

The price of oil would drop by 40-50% which would severely put a hurting on the Russian economy. Of course, little hope since O’Biden is “never on the correct side of major policies” (Former SecDoD Robert Gates).
@Old Wizard why is Ukraine a global flashpoint when 10% for the big man is shaking it down.

How has Ukraine displaced the middle east and China as the greatest threat in our time, yet Germany and the UK could care less.

Long Time Running profile picture
@Old Wizard , first of all, the US is a big part of NATO. You think those air bases in Germany are for the airmen to socialize at beer gardens?

Trump wanted to close those forward bases, what kind of a message do you think that would send to Putin.

Putin won't do f all with Ukraine, it is all bluster, the nationalist dog whistle to keep the masses engaged and off message while he and his cronies rape and pillage.
When (not if) Russia invades Ukraine, will LMT stock react to that event? Opinions anyone? What if NATO gets involved? There are quite clear lines at the moment anyway. Russia is the aggressor as always and Ukraine needs NATO to defend its territory.
I dont think anyone should put 8% of their net worth into anything,

but there are far far worse things to put 8% of your worth into.
Its just an observation, not criticism. Im long LMT also.
Leo Nelissen profile picture
@1504661 All opinions are welcome, thanks for reading!
Steve Kean profile picture
@1504661 It really depends what you own. You can achieve good diversification with 12-15 stocks, so between 6% and 8% per stock.
@1504661 I think many investors have 2-3 favourite stocks where they have heavy concentration. I’ve always had heavy weight on electric power generation and banks.
Steve Kean profile picture
@Leo Nelissen great read, thanks for this article. Their FCF, the safe dividend growth, and 'defensive' attributes attracted me to LMT.

Funny enough - LMT accounts for almost 7% of my portfolio (25 stocks), pretty close to your own allocation.
Leo Nelissen profile picture
@Nirish70 Nice! Good luck with your portfolio, and thank you for leaving a kind comment!
GDPPP profile picture
LMT is a quality name to own over the long run and some of the moves Taiclet has made so far, seem to be related to short-term pain for long-term gains. Glassdoor has a 90% approval rating as a CEO on him, which is encouraging!

Technically, the stock seems to be finding support in the $325-$330 range, so a continued monthly closing above those prices over the next 3-6 months would be very bullish for the next bull run in the stock.
Marrk, I worked for LMT, and was in charge of several large systems and I can assure you there was no overcharging of DOD. In program after program my staff and I regularly worked much longer and harder than most people in commercial businesses. In fact if I worked a 40 hour week then, I would have thought I was on vacation. The F 35 was the government’s idea to have one basic design that could be modified to serve the marines, the Air Force and the Navy. In many areas it pushed the technology envelope by requirement. If LMT could have gross margins like Apple or many of the tech products you buy, its stock would be many times higher. One project I headed developed over 30 cabinets of advanced electronics, millions of lines of code and the development took seven years. The net profit was in the mid single digits. Does that sound like price gouging to you.
@Old Wizard Why does LMT not charge higher for service? Selling products at a thinner margin could be compensated by providing service at a higher margin. These babies are expensive and last for decades, so LMT would make more money in the long run if they raise the service fee.
@American Dream Comes True "Why does LMT not charge higher for service?"
Dost though forget the relatively recent sequestration that was going on?
Ensuring that one doesn't price themselves out of business is also key to getting things done, and well, and also taking home some profit along the way. All without gouging.
Over 25% defense companies? No concerns?
@bulldogbob The only sure things in life are death, taxes and defense spending.
Dividend Ambassador profile picture
This is a great article. Thank you for writing it.
Which are your thoughts about $NOC instead?
Leo Nelissen profile picture
@alexmerax Lower yield, but I love its space exposure. It’s my smallest investment, but that will change. Love it
@alexmerax I own NOC instead of LMT. NOC's lower yield means more money to invest in R&D and buybacks. With high ROE, we would be better off that they don't pay any dividends at all, and reinvest back into business, and use the excess exclusively for buybacks :) So even NOC paid too much in dividends.
@Leo Nelissen Great article. Great company. Worked for them for 33 years.
Leo Nelissen profile picture
@repjr Thank you very much. I'm glad you liked my article - especially because you know them way better than I do I assume.
LMT is a good company and I’m holding my smallish position of 200 shares($355cb). But I tend to let mgmt tell me how they view the future, without saying a word. As a retiree I like dgr & growth and income investing.

With this said (from Drip Investing’s Div Champions List)

Dividend CAGR
10 yr - 13.24%
5 yr - 9.53%
3 yr - 9.14%
1 yr - 8.34%
09/2021 - 7.7%

Mgmt bought back high % of shares, from the supplied chart in article, in 2015-2017, and then they reversed to higher % of dividends paid out. If you look at share price highs recently they were in Feb 2018 & Feb 2020.

Between management’s shrinking dividend increases AND share buybacks, I believe they’ve told us what to expect in the near to medium term. And that’s slower growth and appreciation. I’ll hold as I said, but my new adds in defense have been in ba, noc & GD.
@JDoe20 From my understanding on the hints Buffett gave during his shareholder meeting, dividend yield and return on retained earnings should be an act of balance. If the retained earnings too high, it may not generate a satisfactory result. If the retained earnings too low, it may not have enough cash to grow.

Retained earnings = EPS - Dividend

So, higher CAGR does not necessarily a good or bad sign. If the company cuts dividend and create higher EPS, the stock price goes up and shareowner makes more than dividend yield (with no tax punishment).

What is the point of DRIP when you must pay tax? I rather the company keeps all the dividends but increases EPS at a faster rate and see my wealth goes up on paper. Then, I have total control on when I need to pay tax on my wealth. With dividends, I am "forced" to pay tax each year, regardless of my need for money.
Woke like Jesus aka Guy who thinks profile picture
@JDoe20 small position? 200 shares? Brag much?
@A guy who actually thinks Why would that be considered bragging?
I've got 189+ currently and dripping to pick up more shares every month.

189 * $2.80 = $529.20/qtr, so I get another 1 or 2 shares every quarter

I started at around 10 shares when it was around $185/share about 6 years ago and dollar cost averaged buying more shares every month.
When I get to 200, that should be plenty since it will add about $2,240/yr that I'll be able to use to buy more of other stocks.
Long Time Running,
Why do you hate UNP/NSC/CSX? Are American rails bad investment relative to the Canadians (you have CNI+CP making 30% of your portfolio). Thanks
Leo Nelissen profile picture
@kalu0003 What? UNP is literally my largest holding. I don't even own CNI.
Long Time Running profile picture
@kalu0003 , they are all good, I started with CN, added CP, not necessary to own all the rails.

Each to their own.
Leo Nelissen profile picture
@Long Time Running lol, I'm just now finding out that the question wasn't directed at me
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