Let's get this out of the way right at the outset: If earning passive income -- dividend payments -- is your primary aim in investing, then investing in the space sector might not be your first choice.
The number of "space stocks" trading on stock exchanges exploded in size during the pandemic, as multiple so-called "new space" companies went public via SPAC transactions. This expansion in the range of choices to invest in may inspire investors to look to the space sector for potential passive income investments.
And yet most of these newer space companies -- names like Rocket Lab, Virgin Galactic, and Planet Labs -- are still early in their growth stage. They need to invest their capital in research and development and sales growth, and have little money left over for dividend checks.
That being said, there are a few "old space" companies to choose from.
Image source: Getty Images.
Old space, blue chips
Storied names like Aerojet Rocketdyne (AJRD +0.00%), Ball Corporation (BALL 1.40%), Boeing (BA 0.69%), Lockheed Martin (LMT 0.38%), and Northrop Grumman (NOC 0.17%) -- companies that have been involved in space exploration for decades, or even since the days of the Apollo missions -- are by definition large, well-funded, and proven survivors. They're the kind of blue chip investments a passive income investor actually might want to consider buying when seeking a steady stream of dividend income.
If you consider yourself even more of a space fan than a passive income investor -- to the extent that you are willing to pass over dividend investing ideas in the banking sector, for example, or among utility stocks -- and focus your research exclusively in the space sector, these are the companies you should focus on.
And one of them stands out from the rest.
Boeing and Aerojet
NYSE: BA
Key Data Points
Right off the bat, any space investor seeking passive income from an investment can scratch Boeing and Aerojet Rocketdyne off the list. While major players in the space industry -- Boeing built the Space Station and is one half of the United Launch Alliance rocket-building consortium, and Aerojet is the space industry's go-to supplier of solid rocket engines -- neither Boeing nor Aerojet currently pays its shareholders a dividend.
Ball and Northrop Grumman
NYSE: NOC
Key Data Points
Moving right along, though, we quickly see that two other "old space" companies, Ball Corporation and Northrop Grumman, do pay dividends -- 1.6% and 1.5%, respectively. And in case you're wondering, Ball -- while best known as a container manufacturer -- also operates a space division that manufactures satellites, and accounts for about 14% of the company's revenue according to data from S&P Global Market Intelligence. Ball's a bit pricey, however, weighing in at nearly 21 times earnings. Northrop Grumman looks cheaper at 14 times earnings. But if what you're most interested in is dividend income, the biggest disqualifying factor is probably this:
The average stock on the S&P 500 pays a dividend yield of 2%. Ball and Northrop's dividends, therefore, are both roughly 25% below average.
Lockheed Martin -- last stock standing
NYSE: LMT
Key Data Points
That brings us to Lockheed Martin. The world's biggest pure-play defense stock by revenue, Lockheed Martin is also one of the world's largest space stocks, boasting trailing-12-month sales of $12.2 billion in its "space" segment (about 19% more than Northrop, and probably higher than Boeing as well).
With its 3% dividend yield, Lockheed Martin is also far and away the most generous dividend payer among space stocks. Not only that, but its 3% yield is 1.5x the size of the average dividend payer on the S&P 500, making it a pretty good dividend stock period -- not just a good dividend stock for space investors. And with a payout ratio of only 64%, Lockheed actually has some room to grow its dividend payments so that it might become an even better dividend investment over time.
Also, Lockheed Martin views space as a growth area for its business, one that could help to grow the profits that enable those dividend payments. As Space News reported last week, Lockheed Martin's head of space system, Robert Lightfoot, has laid out an "urgent" plan to increase spending on its space investments, which include investments in rocket companies ABL Space and Rocket Lab (RKLB 2.33%), and in satellite manufacturer Terran Orbital (LLAP +0.00%). The company is also expanding its work internationally to support space companies and space activities abroad.
On top of all that, Lockheed Martin stock sells for a relatively svelte 17.8 times trailing earnings -- about a 7% discount to the average valuation of stocks on the S&P 500 -- despite paying a better dividend than most S&P 500 stocks.
If you're looking to earn passive income from a space stock without taking on excessive risk, Lockheed Martin looks like a pretty good way to do that.
