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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 43.98% 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 2.33%. This compares to the Aerospace - Defense industry's yield of 0.96% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its 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. Right now, Lockheed's payout ratio is 43%, which means it paid out 43% 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 $21.04 per share, with earnings expected to increase 19.61% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 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).