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 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
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 47.66%. The aerospace and defense company is currently shelling out a dividend of $2.2 per share, with a dividend yield of 2.28%. This compares to the Aerospace - Defense industry's yield of 0.89% and the S&P 500's yield of 1.88%.
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%. 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 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, LMT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $21.20 per share, with earnings expected to increase 18.79% 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. 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).