When buying space stocks, consider that many companies are in the early stages of building their businesses. Companies like Virgin Galactic and Rocket Lab are options to play the growth of space exploration if you have a long-term investing horizon and are willing to withstand the volatility of owning unprofitable businesses.
However, income investors may want to avoid these speculative stocks and invest in something more established. Lockheed Martin (LMT -0.20%) is one company that can give you space exposure and also delivers a solid dividend yield. The pure-play defense contractor has an established history of growing its dividend payout for nearly two decades -- making it a solid pick for investors looking to generate passive income.
Lockheed Martin's Orion spacecraft will enable travel to the moon and beyond
Lockheed Martin is a major defense contractor for the U.S., generating 71% of its net sales from U.S. government contracts in 2021. A portion of the company's revenue comes from its space segment, which researches, designs, and engineers satellites and defensive systems. This year, its $8.3 billion in sales from its space segment makes it one of the world's largest space stocks.
Its space segment includes several programs ranging from defense to space exploration. Its Space Based Infrared System and Next Generation Overhead Persistent Infrared utilize satellites to provide the U.S. Air Force with missile warning capabilities. It also produces other missile defense systems and hypersonic strike weapons within this segment.
One exciting program is the Orion Vehicle, a spacecraft made for NASA for human space exploration beyond low earth orbit. In November, NASA's new Space Launch System (SLS) megarocket blasted off, bound for the moon as part of a series of missions called Artemis. On top of the rocket was Lockheed's Orion spacecraft, which will carry astronauts to the moon and eventually Mars as part of the Artemis missions. On Dec. 11, the Artemis Orion I spacecraft completed its 25-day, 1.4 million-mile journey beyond the moon and back. The Orion project is expected to generate billions in revenue for the company over the next decade.
Lockheed has grown its dividend for 19 consecutive years
Amounts allocated to defense spending can fluctuate each year. Still, in general, defense spending isn't optional -- it's essential to the defense of the U.S., and Lockheed Martin's position as a top defense contractor provides stability to its earnings. Military contracts are long-term and generate reliable income for contractors like Lockheed. This stable earnings base is crucial for its dividend payments, which currently yield investors 2.34%. It has also increased its dividend payout for 19 consecutive years.
Lockheed's strong balance sheet is another reason for its stable dividend. A company's debt-to-equity ratio shows how much it finances its business through debt versus money invested by owners and retained earnings. Lockheed's debt-to-equity ratio is a mere 0.11. The interest coverage ratio tells you how many times a company could pay its interest obligations from its current earnings, and Lockheed's is a stellar 13.3. Lockheed has little debt and stable earnings -- two things you want to see when investing in income stocks.
Increasing its space investments through Lockheed Martin Ventures
Lockheed Martin is a solid stock for investors who want exposure to the space industry, and the company plans on upping its investments in the area. Robert Lightfoot, head of Lockheed's Space division, told investors in October that Lockheed Martin Ventures, its venture investment fund, doubled from $200 million to $400 million -- with a third of the fund's investments going toward space companies. It already backs several budding space companies, including ABL Space Systems, which develops launch vehicles; Satellite Vu; Terran Orbital, which manufactures satellites; and Hedron, a communications start-up.
The company's position as a top defense contractor gives it a stable earnings base. Its payout ratio is 51.3%, showing it is in a solid place to maintain and grow its dividend -- making Lockheed Martin an excellent option if you're an investor looking to generate passive income.
