Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 -1.66% since the start of the year. The aerospace and defense company is currently shelling out a dividend of $2 per share, with a dividend yield of 2.53%. This compares to the Aerospace - Defense industry's yield of 0.94% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $8 is up 7.2% from last year. In the past five-year period, Lockheed Martin has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.09%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Lockheed's payout ratio is 50%, which means it paid out 50% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LMT for this fiscal year. The Zacks Consensus Estimate for 2018 is $17.01 per share, which represents a year-over-year growth rate of 27.61%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that LMT is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).