All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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) is an Aerospace stock that has seen a price change of 11.64% so far this year. The aerospace and defense company is paying out a dividend of $2.4 per share at the moment, with a dividend yield of 2.21% compared to the Aerospace - Defense industry's yield of 0.85% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $9.60 is up 6.7% 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 10.08%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
LMT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $24.15 per share, with earnings expected to increase 10.02% 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.
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. 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).