Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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
Based in Bethesda, Lockheed Martin (LMT - Free Report) is in the Aerospace sector, and so far this year, shares have seen a price change of 18.28%. The aerospace and defense company is currently shelling out a dividend of $2.2 per share, with a dividend yield of 2.84%. This compares to the Aerospace - Defense industry's yield of 0.92% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $8.80 is up 7.3% 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 10.60%. 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 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.
LMT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $19.46 per share, which represents a year-over-year growth rate of 10.63%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. 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).