This is Why Lockheed Martin (LMT) is a Great Dividend Stock

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Lockheed Martin in Focus

Headquartered in Bethesda, Lockheed Martin (LMT) is an Aerospace stock that has seen a price change of -0.89% so far this year. The aerospace and defense company is paying out a dividend of $2.4 per share at the moment, with a dividend yield of 2.49% compared to the Aerospace - Defense industry's yield of 0.01% and the S&P 500's yield of 1.59%.

In terms of dividend growth, the company's current annualized dividend of $9.60 is up 6.7% from last year. In the past five-year period, Lockheed Martin has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.46%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Lockheed's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, LMT expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $24.13 per share, which represents a year-over-year growth rate of 9.93%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LMT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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