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Lockheed Returns Shareholder Wealth

Zacks Equity Research

Lockheed Martin Corp. (LMT) has increased its quarterly dividend to $1.33 per share and has authorized the purchase of up to an additional $3 billion of its common stock under the share repurchase program. This move reflects the company’s strong performance and program execution capability.

Lockheed Martin has increased the quarterly dividend by 18 cents from the current payout of approximately $1.15 per share. The proposed hike would bring the annual dividend to $5.32, up approximately 15.7% from the previous payout. The increased quarterly dividend will be paid on Dec 27, 2013 to shareholders of record at the close of business on Dec 2, 2013.

With the current annual dividend rate of $5.32 and the current price of $92.46 (as of Sep 26, 2013), the company has a dividend yield of approximately 4.1%.

This is the eleventh consecutive annual double-digit increase in the company’s dividend. In Sep 2012, the company had increased its quarterly dividend by 15% or 15 cents per share from $1.00 per share to approximately $1.15 per share.

As per the new share repurchase program, the company is permitted to repurchase up to an additional $3.0 billion of the company’s common stock. The program does not have an expiration date. In Sep 2011, the company had last increased its share buyback authorization. The company was then authorized to purchase up to an additional $2.5 billion of its common stock under the share repurchase program.

Lockheed continues to be a strong cash generator with its operating cash flow reaching approximately $2.7 billion during the second quarter. The company ended the second quarter with cash and cash equivalents of $2.8 billion and total long-term debt of approximately $6.1 billion (including current portion of the long-term debt), which fell from $6.2 billion at year-end 2012. This helps Lockheed to return a substantial portion of free cash flow to its shareholders through share repurchases and incremental dividends.

In the second quarter of 2013, the company repurchased 4.5 million shares at a cost of $465 million and disbursed $371 million as dividends. As of Jun 30, 2013, the company had repurchased 63.8 million shares for a total cost of $5.1 billion. The company has another $1.4 billion remaining under the current repurchase program.

Going forward, shareholder return will continue to be shored up by the company’s focus on debt repayment, its ongoing share repurchase program and the incremental dividend, which would keep the stock attractive for shareholders. Meanwhile, the steady flow of contracts for Lockheed would add to the top line of the company. The company presently retains a short-term Zacks Rank #2 (Buy).

Other stocks worth considering in the space are Northrop Grumman Corp. (NOC), Elbit Systems Ltd. (ESLT) and Alliant Techsystems Inc. (ATK). While Alliant Techsystems carries a Zacks Rank #1 (Strong Buy), Northrop Grumman and Elbit Systems hold a Zacks Rank #2 (Buy).

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