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Lockheed Martin (LMT)
Over in this thread, bobbyboy1970 asks if Lockheed Martin (LMT) is a buy. In talking about dividend growth, I said:

Quote:It is a rare stock indeed that has a high current yield and that is also growing the dividend at a fast pace year over year. One example of this is Lockheed Martin (LMT). Currently yielding a generous 5 percent (approximately), LMT has also been growing the dividend at an average rate of over 20 percent each year for the last five years. There are other reasons to think twice about LMT (sequester, earnings trajectory), but it is hard to argue with LMT’s winning combination of dividend growth factors.

Since early October of 2012, I've made a handful of small purchases of LMT at an average price per share of $91.52 (including commissions). I started buying it around $94, and as the price dropped into the mid-80s, I picked up a few more shares here and there to average down my price.

I think LMT Has a lot going for it as a DG stock. For starters, as mentioned above, the dividend growth profile has been excellent in recent years. It has a reasonably strong streak of raising the dividend for 10 years in a row now, and even with the aggressive raising of the dividend in more recent years, the payout ratio for 2012 was still under 50 percent. With a P/E ratio in the 10 to 11 range, I am very comfortable with the valuation.

The weak link in the LMT story, and this is not trivial, is earnings growth. The five-year average earnings growth is less than 5 percent. If you look all the way back to 2007, LMT earned $7.00 per share that year, which makes 2012's $8.36 look underwhelming. I've seen estimates of 2013 earnings per share at $8.80, which is certainly moving in the right direction, but at more or less the same slow pace seen recently. Without earnings growth, it is hard to count on long term dividend growth.

So how has LMT fueled the stellar dividend growth that I discussed earlier? The answer is in the payout ratio. In 2008 the payout ratio was around 24 percent, in 2009 it was just over 30 percent, in 2010 it grew to 37 percent, then 41 percent in 2011, and all the way to 49 percent in 2012. As I said above, a payout ratio around 50 percent does not give me pause, but for LMT to keep growing the dividend at anything close to the rate they have been, without a corresponding growth in earnings, the payout ratio will only continue to climb. The situation is far from grim, but it is also simply not long term sustainable. My guess -- and it is nothing more than that -- is that starting as early as this year, they will be more conservative with the dividend raises. Still, if you buy today, your starting yield is just about exactly 5 percent, which is not too shabby, so even if the raises are less aggressive than in the past, you'll do just fine.

As to the intangibles, LMT has some positives and negatives. I generally like to invest in more simple business models that have less overhead -- business that I could imagine running myself. (Think tobacco company or Pepsi.) LMT is far from that. On the other hand, LMT has a very nice advantage in that much of its revenue comes from government spending. Talk about the sequester all you want, but the world does not seem to be getting a whole lot more peaceful, and I think governments are going to keep buying the drones and joint strike fighters and the hundreds of other military / aerospace doodads that LMT makes.

On balance, for all of these reasons, I am happily long with LMT as about 5 percent of my portfolio.
I agree with most of what you've said there. And Lockheed stock has had a pretty great week, from about $92 to about $96.
I think LMT is OK to hold into the forseeable future, maybe even longer. It's a good company, I worked for their biggest competitor for 36 years until I retired a while back, so I know them to some extent.

Last fall before the election LMT delayed sending out layoff notices so as to not influence the election (or to influence the election, depending on how you look at it). Say what you want but I think this gave them a boost or at least put them in favor with the administration. If you watch their news feed it seems like every day they get a new contract.

I bought a little back in the fall of 2010 at $74 and a bit more on 1/31/2013 at $87. It was one of those stocks I was a little leery of really doing something meaningful with, and regretted being such a chicken.
I wish I had gotten interested in LMT a little earlier than I did (but isn't that the way with most stocks!). I started buying in late 2012 when I figured the sequester talk was going to cause an overreaction to the downside. I did catch the early 2013 dip and got a few shares under $87, but my average price per share is more like $92. I'm still very comfortable with this stock, and have come to think of it like my tobacco holdings -- they've got an inherent advantage in that they sell an "addictive" product, and better yet, their customers buy using other people's money (the taxpayers')!
(07-14-2013, 06:35 AM)Horace Cugle Wrote: I bought a little back in the fall of 2010 at $74 and a bit more on 1/31/2013 at $87. It was one of those stocks I was a little leery of really doing something meaningful with, and regretted being such a chicken.

I can certainly relate to your "chicken" feelings! Would have been nice to load up the truck on LMT at $74. It has had a great run the past few months, from $80s to over $110. Personally, I still think it has some room to run, though I'm not sure if I'll pick some up soon. I've got a little less dry powder than I usually like, and am focused on building that back up while waiting for the next round of opportunities.
I don't know, guys. I know it is easy to feel like you've missed the boat on Lockheed. But I just updated my spreadsheet on it to incorporate the latest (stellar!) earnings report, and I've got to say, it still looks like a solid pick to me, even at these prices. I've been speculating that this year's dividend increase is likely to be smaller, percentage-wise, than we've seen in recent years, especially in light of slow earnings growth. Even with the great earnings report I think we're unlikely to see a 20 percent boost, but should be a healthy 10 or 12 percent raise. Payout ratio and p/e are still solid, and it is still yielding close to 4 percent. I'm keeping a lookout for a solid pullback to perhaps grab a few more shares of this one above 4 percent.
You might be right but as much as I'd like to own a little more LMT I can't make make myself pay $118 for it. My old company NOC had a big beat today, might be worth a look at a little over 11 times.
I'm still on the fence about adding to LMT but I'll tell you what, even at $123 it yields 3.73% and they have raised the dividend like crazy the last 10 years. Their last raise was 15%, next one should be announced in a month. Another 15% raise would push the yield to 4.30%. Excellent yield and big dividend growth. It goes ex-dividend tomorrow.
I agree with you completely, Horace. I'm not shopping for any LMT right now as it already makes up over 6.5 percent of my portfolio and there are some other bargains around right now (PM below $83?!?!), but I agree that even at today's prices LMT is top-shelf dividend growth stock. I don't think we're really on the cusp of world peace here, so I think their market is healthy if not growing. Not to mention the fact that governments pay them with taxpayer money.
I agree on PM, I added some a week or so ago at $85.50 and felt like I stole it. I'd buy more but I've got enough.

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