Investors often choose U.S. defense stocks because they are attached to relatively safe companies. The U.S. government is a reliable customer, and there's no shortage of geopolitical tensions driving increased demand for defense spending around the globe. Moreover, stocks like Lockheed Martin (LMT 1.18%) tend to pay growing dividends.
NYSE: LMT
Key Data Points
The chart below shows the stock's dividend-per-share, earnings-per-share, and free-cash-flow-per-share ratios so you can see just how well covered its dividend is.
LMT Free Cash Flow Per Share data by YCharts
Dividend payout in 2024
That healthy coverage will continue in 2024. The defense company's currently quarterly dividend is $3.15 per share, and the dividend currently yields about 2.3%. The midpoint of management's earnings-per-share guidance for 2024 is $26.35, and the dividend per share in 2024 will be $12.60. This year's payout will be about $3.04 billion, and management expects $6 billion to $6.3 billion in free cash flow in 2024.
In other words, Lockheed Martin plans to pay slightly less than 50% of its earnings and cash flow in dividends. This payout ratio allows room for growth, particularly if Lockheed Martin can continue growing earnings and cash to follow historical norms.
That seems likely, although investors shouldn't be too quick to assume that the increased defense orders will translate into rapid earnings and cash-flow growth. As previously discussed by me, many defense companies, including Lockheed Martin, are struggling with margin expansion due to problematic fixed-price programs secured in less inflationary times.
As such, Lockheed Martin is likely to be a solid rather than spectacular dividend grower, which might suit many investors.
