Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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
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 46.18%. Currently paying a dividend of $2.2 per share, the company has a dividend yield of 2.3%. In comparison, the Aerospace - Defense industry's yield is 0.92%, while the S&P 500's yield is 1.9%.
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 9.66%. 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.
Earnings growth looks solid for LMT for this fiscal year. The Zacks Consensus Estimate for 2019 is $21.22 per share, representing a year-over-year earnings growth rate of 20.64%.
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.
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 must be conscious 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).