Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 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 30.6% since the start of the year. The aerospace and defense company is currently shelling out a dividend of $2.2 per share, with a dividend yield of 2.57%. This compares to the Aerospace - Defense industry's yield of 1.03% and the S&P 500's yield of 2.03%.
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%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Lockheed's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LMT for this fiscal year. The Zacks Consensus Estimate for 2019 is $20.53 per share, with earnings expected to increase 16.71% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that LMT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).