Is this the best dividend stock in the immortal arms industry?
The arms and defence industries are popular among investors for many reasons. However, picking the right player may not be so easy. But one outshines all others at first glance. Is this company clearly the best choice in this sector?
Lockheed Martin $LMT-0.2% is an American multinational company based in Maryland that specializes in the development and manufacture of aerospace systems. The company was founded in 1995 by the merger of Lockheed Corporation and Martin Marietta. Lockheed Martin is one of the largest suppliers of defense and security solutions in the world.
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Lockheed Martin has an extensive portfolio of products and services, including aircraft, helicopters, satellites, missile systems, security and information technology, and much more. The company operates in various fields such as defense, space, civil aviation and security technologies.
Lockheed Martin also has a strong market position and significant relationships with the US government. The company is one of the largest suppliers of defense and security solutions to the U.S. government and has long-term contracts with the U.S. military. Lockheed Martin also receives contracts from other governments, including the UK, Canada and Australia.
But that's also one of the main challenges - the company's dependence on government contracts, which can mean fluctuations in revenue depending on changes in government budgets. Lockheed Martin also faces competition from other big players in the market, such as Boeing $BA+0.2% or Northrop Grumman $NOC+0.4%
Another risk is regulation and compliance. Lockheed Martin must comply with strict requirements and standards for defence and security products, which can be costly and challenging to implement. The company also faces the risk of reputational damage if regulations are violated.
Sector and competition
The arms industry is a specific sector characterised by high research and development costs, heavy reliance on government contracts and stringent security and data protection requirements. Competition in this sector is very strong and includes several major players focusing on innovative products and technologies in order to gain an advantage in the market.
The problem is the aforementioned competition. Boeing focuses on aircraft and space systems such as the F/A-18E/F Super Hornet aircraft, the KC-46 Tanker aircraft and the CST-100 Starliner spacecraft. Northrop Grumman focuses on unmanned aerial vehicles, electronic warfare and space systems such as Global Hawk aircraft , B-2 Spirit systems and Cygnus spacecraft. Raytheon Technologies specializes in defense electronic systems, missile systems, and unmanned aerial vehicles such as the MQ-9 Reaper aircraft and Patriot missiles. General Dynamics focuses on defense systems such as Abrams tanks , F-16 Fighting Falcon aircraft and ships.
Competition between these companies is very strong and involves a constant drive to innovate and develop new products and technologies to gain an advantage in the marketplace. These companies also compete for large government contracts that can have a significant impact on their performance and profitability.
LMT focuses on a wide range of defense and security products and services, including aircraft, missile systems, space systems, security and information technology, and much more. The company has a strong position in aircraft, such as the F-35 Lightning II and F-22 Raptor, as well as space systems, such as GPS III and Orion satellites.
In the competitive arms industry, it is critical for LMT to maintain its position in innovation and technology, as well as focus on efficiency and cost to keep its products and services competitively priced. LMT must also be able to respond to changes in government budgets and changes in market demand to maintain its ability to win and fulfill contracts.
Another factor that affects competition in the arms industry is security and data protection. Customers in this industry are very sensitive to the security of their data and information, so LMT must be able to provide secure and reliable products and services that effectively protect sensitive information.
Due to the high cost of research and development and manufacturing, the weapons industry is very capital intensive, and price, quality and reliability of products and services, as well as the supplier's ability to meet customer requirements on time and at the expected cost, are critical in selecting a supplier.
Is this the best company in the arms industry?
It is difficult to state unequivocally whether Lockheed Martin is the best company in the weapons industry. However, it has clear qualities. One of them is a broad portfolio of strong links to the States. The other is their financial position, for example, from which the remarkable dividend and its track record emerge.
The current annual dividend of $12.00 per share gives LMT investors a current yield of 2.66%. Based on LMT's forward earnings estimate of approximately $27, the stock has a forward payout ratio of 44%, which compares favorably to its 5-history.
Buybacks - this is another area where LMT has improved over the years. The share count has been steadily declining regardless of the time frame you look at.
Lockheed Martin is literally an FCF generator, and it's run by a shareholder-friendly management team.
Annual free cash flow averaged just over $6.7 billion in 2020-2022 versus current dividend obligations of $3.0 billion in 2022.
The company also repurchased $13.1 billion of its common stock in those years. In 2023, the company expects free cash flow of ~$6.2 billion, which should be more than sufficient to cover expected dividend obligations. The company also plans to again spend approximately $4.0 billion on share repurchases in 2023, but some of these repurchases will likely require the company to lean on its strong balance sheet. Management expects the company to return to growth in 2024, primarily due to the normalization of F-35 fighter deliveries.
All in all, Lockeed is an extremely high-quality company with many strengths without sport. Do you have it in your portfolio?
Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.