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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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 8.22% since the start of the year. Currently paying a dividend of $2 per share, the company has a dividend yield of 2.3%. In comparison, the Aerospace - Defense industry's yield is 0.9%, while the S&P 500's yield is 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $8 is up 7.2% from last year. Lockheed Martin has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.20%. 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. Lockheed's current payout ratio is 50%, meaning 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, with earnings expected to increase 27.61% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful 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).