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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Lockheed Martin in Focus
Headquartered in Bethesda, Lockheed Martin (LMT - Free Report) is an Aerospace stock that has seen a price change of 40.99% so far this year. The aerospace and defense company is currently shelling out a dividend of $2.2 per share, with a dividend yield of 2.38%. This compares to the Aerospace - Defense industry's yield of 0.95% 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. 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 10.30%. 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 44%, meaning 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 $20.50 per share, which represents a year-over-year growth rate of 16.54%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 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).