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Lockheed Martin: Robust Backlog, Dividend Growth Potential
Stock Analysis & Ideas

Lockheed Martin: Robust Backlog, Dividend Growth Potential

Lockheed Martin Corporation (LMT) is one of the world’s largest aerospace and defense contractors, with a diversified operational profile.

While COVID-19 has shaken the industrial sector, Lockheed Martin has managed to succeed in its deliveries; posting solid financials and maintaining a large backlog that should secure stable, and predictable cash flows moving forward. (See LMT stock charts on TipRanks)

For this reason, the company should be able to keep expanding its prolonged dividend track record, with payouts likely to continue growing at a rapid pace. I am bullish on the stock.

Robust Backlog, Future Revenues

With international governments placing large orders and signing multi-year supply contracts with Lockheed, the company features a considerable backlog of future deliveries, ensuring excellent cash flow visibility, and future revenue stability.

Lockheed ended Q2 with a backlog worth $141.7 billion. Based on the company’s current delivery rate, Lockheed should enjoy a predictable revenue stream, amounting to a little over two years’ worth of sales.

Hence, assuming no unforeseen adverse events occur anytime soon, Lockheed’s short-to-medium-term should be quite favorable.

Lockheed’s backlog alone is great, but the fact that revenues are governmentally sourced is what further elevates their quality. Governments are very unlikely to breach their defense contracts or miss on their scheduled payments.

The U.S. government is the company’s largest customer. It accounted for 74% of Lockheed’s total revenues in Fiscal Year 2020. Therefore, Lockheed faces virtually no counterparty risks. Further, as governments strive to be at the top of the aerospace and defense race, Lockheed’s backlog should continue to be strong in the long-run.

Dividend Growth Potential

Due to Lockheed’s predictable cash flows, the company has been able to provide very consistent returns to its shareholders over the years.

Along with hefty stock buybacks, Lockheed Martin features a 19-year record of consecutive annual dividend increases. The latest quarterly dividend increase was 8.3%, while Lockheed’s five-year DPS CAGR (Compound Annual Growth Rate) stands at 9.5%. These rates are quite impressive for a very mature company like Lockheed.

With a payout ratio of 39.7%, and EPS set to keep growing, the company should be quite comfortable sustaining its ongoing record at a speedy pace.

It’s worth noting that Lockheed’s generous buybacks not only help EPS grow, but also save the company significant levels of cash that would be spent in future dividends.

Wall Street’s Take

Turning to Wall Street, Lockheed Martin has a Moderate Buy consensus rating, based on six Buys, three Holds, and zero Sells assigned in the past three months. At $423.89, the average LMT price target implies 17% upside.

Overall, Lockheed Martin seems pretty attractively priced. The stock’s forward P/E ratio is presently around 13, which is near the lowest valuation multiple Lockheed has attracted over the past eight years.

Considering the company’s quality cash flows, dividend growth prospects, extensive moat, and inexpensive valuation, now could be an exceptional opportunity for investors to consider adding LMT to their portfolios.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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