Lately, it feels like there's a new story about problems with a Boeing aircraft every week. Boeing is one of only a few companies that build commercial jets, so it's hard to see the company vanishing. It could be too big to fail. However, that doesn't mean you should buy the stock. There's no telling how deep Boeing's problems run.
Instead, consider a proven winner like Lockheed Martin (LMT -0.75%). It's a more diversified defense and aerospace company than Boeing, poised to deliver solid long-term investment returns.
Here is what you need to know.
Lockheed Martin is a diverse but pivotal industry presence
Aviation is a significant component of Lockheed Martin's business, but the company is diversified across air, land, sea, and space. Lockheed Martin designs and manufactures complex weapons systems, vehicles, and technologies for the U.S. government and its allies. Some of Lockheed Martin's famous programs include the F-35 fighter jet, Black Hawk helicopters, the Javelin weapon system, Air Warfare Destroyer ships, and more.
The company's trailing 12-month revenue is $67 billion, and Lockheed Martin ended 2023 with a record-high $160.6 billion order backlog. Unfortunately for the world, the ongoing geopolitical conflicts, including in Gaza and Ukraine, only increase the likely demand for defense and weapons products like what Lockheed Martin builds.
Lockheed Martin has existed since the early 1900s, and that's generations of relationship building with the U.S. government, the best customer a company could hope to have. It's doubtful that Lockheed Martin is going anywhere anytime soon.
The company returns cash to shareholders
Importantly, Lockheed Martin is profitable enough to share its profits with investors. It repurchases its shares to help boost earnings-per-share growth and pays dividends that management has raised for 22 consecutive years.
This dramatically boosts investment returns over time. For example, a $10,000 investment in Lockheed Martin 20 years ago would be worth $99,000 today on price appreciation alone. Add in the dividends, and that investment balloons to over $173,000:
The share repurchases add up too. The outstanding share count has declined by nearly 24% over the past decade alone.
Fortunately, Lockheed Martin seems poised to continue this successful recipe for returns. The dividend payout ratio is 49% of cash flow, leaving roughly $3 billion in cash flow after paying the dividend that management can repurchase shares with. Lockheed Martin is also leveraged to just 1.6 times its EBITDA, so the balance sheet is in great shape and doesn't need to be immediately addressed. That means more cash for investors.
Could Lockheed Martin fly past long-term expectations?
The biggest drawback to Lockheed Martin today is the company's struggle to grow revenue. Sales have stagnated over the past few years, and there is a lot of political pressure to keep federal spending under control.
LMT Revenue (TTM) data by YCharts
Fortunately, management is guiding 2024 revenue between $68.5B and $70B, so Lockheed Martin looks ready to resume revenue growth. However, analysts believe the company's earnings will grow by just mid-single digits annually over the coming years.
These estimates could prove conservative. For starters, America's defense budget continues to grow. According to Statista, experts believe it will grow from around $850 billion to over $1 trillion over the next decade. There is also the uncertainty of U.S. politics. Elections could change the outlook for defense and aerospace companies like Lockheed Martin.
Investors should note that management is guiding for a slight earnings decline in 2024, but the long-term trend seems to be upward. It's just a matter of how fast earnings will grow.
Still, it's hard to go wrong here if you're a long-term investor looking for a slow and steady wealth-creating stock you can buy and sleep well at night.
