With current global uncertainties, it is difficult to see defense spending declining. In fact, it is not a stretch to see defense spending accelerating, especially for certain strategic programs, explains Chuck Carlson, editor of DRIP Investor.
One firm that should benefit from a need for a strong defense is Lockheed Martin (LMT). The company is an integral player in the defense systems of the U.S. and our allies. The company’s products and systems include F-16 and F-35 fighter jets, Javelin weapon system, and Sikorsky military and rotary-wing aircraft.
Two of its defense systems — the High Mobility Artillery Rocket Systems (HIMARS) and Guided Multiple Launch Rocket Systems (GMLRS) — have played a prominent role in the Russia-Ukraine war. Lockheed recently announced that it is increasing HIMARs production by nearly 60%.
Lockheed put up some nice numbers in the third quarter. Per-share profits of $6.87 beat the consensus analysts’ estimate of $6.71. Free cash flow in the quarter was $2.7 billion, up from $1.6 billion in the year-earlier quarter.
For 2022 overall, net sales should be in the vicinity of $65.2 billion, with per-share earnings of roughly $25. The stock’s P-E ratio based on that 2022 earnings estimate is 18. That seems like a reasonable multiple to pay for a company that is strategically vital to our nation’s defense.
Long term, Lockheed Martin has plenty of runway for growth. Indeed, the company’s backlog at the end of the third quarter was $140 billion. Lockheed is showing confidence in its future, as the firm recently boosted its dividend 7% — the dividend boost brings the current dividend yield to 2.7% — while announcing the addition of $14 billion in share-repurchases authority.
Please note Lockheed Martin offers a direct-purchase plan whereby any investor may buy the first share and every share directly. Minimum initial investment is $250, although Lockheed will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50. There is no enrollment fee. Full or partial dividend reinvestment is available. Selling fees are $25 plus $0.12 per share. The plan administrator is Computershare.