How to Invest in Lockheed Martin

Lockheed Martin (LMT -0.75%) is a leading global security and aerospace company. It operates four business segments based on the products and services it offers government and commercial clients:

• Aeronautics: It designs, develops, manufactures, and supports advanced military aircraft. Notable programs include the F-35 and F-22 stealth fighters, C-130 airlifter, and F-16 fighters.
• Missiles and Fire Control: Lockheed Martin provides air and missile defense systems, tactical missiles, and air-to-ground precision strike weapon systems. Major programs include the Patriot and Thermal High Altitude Area Defense (THAAD) air and missile defense programs and the Javelin program.
• Rotary and Mission Systems: It designs, manufactures, and supports military and commercial helicopters, surface ships, sea and land-based missile defense systems, and radar systems. Notable programs include Sikorsky helicopter programs like the Black Hawk and U.S. Marine One.
• Space: The company designs, develops, and produces satellites, space transportation systems, and defense systems. Notable programs include the Trident intercontinental ballistic missile and Orion spacecraft.

Lockheed Martin is one of the biggest defense companies in the stock market. It generates relatively stable and growing revenue and profitability because defense spending by the government tends to be predictable and growing. Defense spending typically increases even more during times of conflict, which has been the case in recent years due to the wars in Ukraine and Israel.

The overall stability and steady spending growth make defense stocks like Lockheed Martin relatively low-risk investments. Those features might have you interested in investing in its stock. Here's a step-by-step guide on how to buy the aerospace stock and some factors to consider before adding it to your portfolio.

How to buy

How to buy Lockheed Martin stock

People interested in buying shares of Lockheed Martin need to take a few steps before becoming a shareholder. Here's a step-by-step guide to adding the defense contractor to your portfolio.

1. Open a brokerage account

You'll need to open and fund a brokerage account before buying shares of any company. If you don't have one yet, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.

2. Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. You don't have to get there all at once. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

3. Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term. Continue reading to learn more about some crucial factors to consider before investing in Lockheed Martin stock.

4. Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (LMT for Lockheed Martin).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.

Here's a screenshot of an order page from the five-star rated Fidelity Investment's trading platform:

Once you complete the order page, click to submit your trade and become a Lockheed Martin shareholder.

Should you invest?

Should I invest in Lockheed Martin?

Doing your research is an important step to take before buying a stock. It will hopefully increase your conviction that the company can be a winning investment. However, your due diligence might lead you to discover something about the company that changes your opinion about buying shares.

With those factors in mind, here are some reasons why you might want to invest in Lockheed Martin:

• You want to add some exposure to the defense sector to make your portfolio more diversified.
• You believe Lockheed Martin can outperform the S&P 500 over the next three to five years.
• You want to own companies that pay an above-average and growing dividend (Lockheed Martin's dividend yield was 2.8% in late 2023 versus 1.6% for the S&P 500. It had also increased its payout for 21 straight years).
• You think Lockheed Martin's 21st Century Security strategy will help the company return to growth.
• You think the wars in Israel and Ukraine will cause increased defense spending in the coming years.
• You're a value investor and think Lockheed Martin's valuation (a price-to-earnings (P/E) ratio of 16.5 times in late 2023) is reasonable for a stable company.

On the other hand, here are some reasons why you might decide not to invest in Lockheed Martin:

• You don't want to invest in a company that profits from war.
• You don't need dividend income right now.
• You're not convinced Lockheed Martin can outperform the S&P 500 over the next few years.
• You already own another defense stock.
• You think governments spend too much money on defense and want to see that budget line cut.
• You're seeking a company with more growth potential than Lockheed Martin.
• You're not sure the company's 21st Century Security strategy will be a major growth driver.

Profitability

Is Lockheed Martin profitable?

Analyzing a company's profitability is an essential aspect of investment research. Rising profitability tends to be the most important factor propelling a stock's price over the long term.

Lockheed Martin is a very profitable company. It recorded almost $66 billion of revenue in 2022 and $7.2 billion of segment operating profit, giving it an operating profit margin of 10.9%. Both numbers were down slightly from 2021, when it recorded $67 billion in revenue and $7.3 billion in operating profit.

The company expected 2023 to be slightly better than 2022. It forecasted revenue between $66.3 billion and $66.8 billion and segment operating profit of $7.3 billion-$7.4 billion.

Lockheed Martin's strong profitability allows it to generate lots of free cash flow. The company expected to produce $6.2 billion of free cash in 2023 after accounting for $2 billion in capital expenditures. It returns most of its free cash flow to investors through share repurchases and dividends.

While Lockheed Martin hasn't grown in recent years, it expects to return to growth in 2024 and beyond. Defense budgets are on the rise following the wars in Ukraine and Israel. In addition, the company is investing heavily in its 21st Century Security strategy, which it expects will drive new business growth in the future.

Dividends

Does Lockheed Martin pay a dividend?

Lockheed Martin makes quarterly dividend payments to its shareholders. As of late 2023, the defense giant paid $3.15 per share each quarter ($12.60 annually). That gave it a 2.8% dividend yield at its share price at the time (around $450 a share).

The aerospace and security company has an excellent track record of increasing its dividend. It raised its quarterly payment by $0.15 per share, or 5%, in late 2023. That marked its 21st consecutive year of dividend growth.

ETFs

ETFs with exposure to Lockheed Martin

Many investors prefer a more passive investing approach than directly owning stocks they must actively monitor. Buying an exchange-traded fund (ETF) can be a great way to gain some passive exposure to Lockheed Martin.

According to ETF.com, 274 ETFs held 27 million shares of the defense contractor as of late 2023. The Schwab U.S. Dividend Equity ETF (SCHD -0.1%) was the largest holder at 3.6 million shares. The ETF focuses on companies that have strong track records of paying dividends. Lockheed Martin was the fund's 13th-largest holding in late 2023, at about 3.4% of its total assets. This ETF is ideal for investors seeking exposure to high-quality dividend stocks like Lockheed Martin.

Investors seeking passive exposure to the defense sector could consider buying a defense ETF. Three leading defense ETFs with meaningful exposure to Lockheed Martin are:

• iShares U.S. Aerospace & Defense ETF (ITA 0.4%): The ETF provides exposure to U.S. aerospace and defense stocks. Lockheed Martin was its third-largest holding in late 2023 at 7.9% of the fund's total assets. The fund has a 0.4% ETF expense ratio.
• Global X Defense Tech ETF (NYSEMKT:SHLD): This ETF focuses on defense technology companies. Lockheed Martin was its fourth-largest holding as of late 2023 at 7.3% of its assets. The fund had a 0.5% total expense ratio.
• Invesco Aerospace & Defense ETF (PPA 0.56%): The ETF focuses on companies involved in the development, manufacturing, operations, and support of U.S. defense, homeland security, and aerospace operations. Lockheed Martin was its second-largest holding in late 2023 at 6.5% of its total assets. The fund had a 0.58% total expense ratio.

Related investing topics

Stock splits

Will Lockheed Martin stock split?

Lockheed Martin didn't have an upcoming stock split on the calendar as of late 2023. The defense giant has only had one stock split in its history. In 1998, it completed a 2-for-1 stock split.

Lockheed Martin could split its stock again in the future. Shares have steadily gained value over the years and were around $450 per share in late 2023. That was close to its all-time closing high of $494.73, which it reached in April 2023. If shares continue to gain altitude, Lockheed Martin could complete a stock split to make them more accessible to investors.

The bottom line on Lockheed Martin

Lockheed Martin is a leading defense contractor. It benefits from relatively stable and growing government spending on defense, making it a fairly low-risk investment.

However, it's not for everyone. You should make sure it's right for you before adding shares to your portfolio.