All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Lockheed Martin in Focus
Lockheed Martin (LMT - Free Report) is headquartered in Bethesda, and is in the Aerospace sector. The stock has seen a price change of -1.12% since the start of the year. The aerospace and defense company is currently shelling out a dividend of $2.4 per share, with a dividend yield of 2.49%. This compares to the Aerospace - Defense industry's yield of 0.01% and the S&P 500's yield of 1.62%.
Taking a look at the company's dividend growth, its current annualized dividend of $9.60 is up 6.7% from last year. Over the last 5 years, Lockheed Martin has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.97%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Lockheed's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.
LMT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $24.12 per share, representing a year-over-year earnings growth rate of 9.89%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LMT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).