2021 Week 23: Lockheed Martin Corp (NYSE: LMT)

Portfolio Update

The FiveTwenty portfolio received $127.17 in dividends in the past week. AFL, ENB, FTS, SJM paid their quarterly dividends during the week.

Past Week Dividend$127.17
Current Quarter Dividend (Q2 2021)$239.84
LifeTime Dividend$352.88
Estimated Annual Dividend$1,760.78
Dividend Scorecard

The capital allocation for the week of 06/06/2021 to 06/12/2021 will be used to establish a position in Lockheed Martin Corp (NYSE: LMT)

LMT – Company Profile

Lockheed Martin Corp (LMT) is a security and aerospace company. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space. It is the larges defense contractor based on revenue. F-35 jet, Sikorsky helicopters, and satellites are among the company’s products. Official Site | Wikipedia

Dividend Streak18 years
Yield2.59%
Payout Ratio40.7%
P/E15.72
Entry Criteria Scorecard

Financials

Does LMT have the financial means to sustain and raise its dividend going forward?

Over the last decade, LMT grew revenues and net earnings considerably. Revenues grew from $46.5 billion in 2011 to $65.4 billion in 2020. Net income increased from $2.7 billion in 2011 to $6.8 billion in 2020.

In FY 2016, LMT divested the Information Systems & Global Solutions (IS&GS) business and completed integration of the Sikorsky acquisition. Total revenue for 2014, 2015, and 2016 do not include revenue from IS&GS. Including IS&GS revenue, revenue for 2014 and 2015 were $45.6 billion and $46.1 billion respectively. In addition, the divestiture transaction resulted in a net gain of $1.2 billion.

In FY 2017, the company took a one-time non-cash tax charge of $2 billion ($6.77 per share) related to the Tax Cuts and Jobs Act. Excluding the one time tax charge and earnings from discontinued operations net income for 2016 and 2017 would have been $3.7 billion and $3.9 billion.

In the last 10 years, LMT grew EPS from $7.81 to $24.30, a CAGR of 12.02%. This growth was powered by a growth of net earnings as well as by a steady reduction of outstanding shares. Shares outstanding decrease from 321 million at the end of 2011 to 279 million at the end of 2020, a 13% decrease.

The average dividend per share growth rate was 13.30% per year in the past 10 years and 9.50% per year in the past 3 years. (per GuruFocus) The payout ration has stayed between 39% and 54%. (2017 payout ratio is an outlier impacted by the on time tax charge)

LMT in 2021 and beyond

LMT posted solid Q1 2021 results. Revenue grew to $16.3 billion from $15.7 billion, and net earnings increase to $1.8 billion or $6.56 per share from $.17 billion or $6.08 per share from Q1 2020. All 4 segments saw an increase in sales compared to the previous year. Additionally, the order backlog at the end of the quarter stood at $147.4 billion up from $147.1 billion at the end of Q4 2020.

Furthermore, the company increased it full year year guidance indicating that it now expects revenues of between $67.3 and $68.7 billion (previous $67.1 to $68.5 billion) and EPS of between $26.40 and $26.70 (previous $26.00 to $26.30).

Valuation

Are we paying too much for LMT at the current share price?

In the last 10 years, LMT’s P/E ratio saw a low of 8.52 and a high of 51.21, with a median value of 16.31. (per GuruFocus) The current TTM P/E ratio of 15.72 is slightly below the historical median.

The current share price of $394.10 is 2.8% above the 50-day moving average and 7.3% above the 200-day moving average. Additionally, the share price is near the 75th percentile of the 52 week trading range.

This year, the share price increased 20% from its low at the end of February. However, it is still in line with historical valuations.

Yield

How does the current dividend yield for LMT compare to historical values?

In the last 10 years, the dividend yield for LMT has been in a range of 2.05% to 4.88%, with a median of 2.85%. (per GuruFocus) The current TTM yield of 2.59% is slightly lower than the historical median.

The current yield for the company does not compare favorably to historical values.

Thesis

Why are we adding LMT to the FiveTwenty portfolio?

LMT has compile a strong track record of growing its dividend payout at an impressive rate. It has done so while maintaining the payout ration well below 60%. Additionally, the company’s core business segments continue to exhibit solid growth.

We believe LMT will provide a stable source of dividend income for the foreseeable future.

Additional Research


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