All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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 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 -8.38% so far this year. Currently paying a dividend of $2.4 per share, the company has a dividend yield of 2.69%. In comparison, the Aerospace - Defense industry's yield is 0.82%, while the S&P 500's yield is 2%.
Looking at dividend growth, the company's current annualized dividend of $9.60 is up 6.7% from last year. Lockheed Martin has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.18%. 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. 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 2020 is $24.05 per share, with earnings expected to increase 9.57% 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. It's important to keep in mind that not all companies provide 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. 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).