Lockheed Martin Corporation (NYSE:LMT) has felt the impact of the Pentagon’s colossal defense spending cut, but investors should stand their ground and consider this defense stock a strong buy.
The 2011 Budget Control Act dropped the bomb on defense stocks as it authorized a whopping decrease of $1.2 trillion of discretionary spending over the course of 10 years. But LMT — along with other big name aerospace and defense contractors such as Boeing Co (NYSE:BA), General Dynamics Corporation (NYSE:GD) and Northrop Grumman Corporation (NYSE:NOC) — has refused surrender to this costly setback.
While shareholders had to swallow a slightly unsatisfying Q4 earnings report, LMT still boasts long-term upside. Armed with a wealth of contracts that supply valuable programs like the F-35 — the world’s most expensive fighter jet — which will generate multiple years of revenue, LMT will continue to evolve as it successfully discovers new means of revenue.
If you’re still unsure whether LMT stock is destined for blue skies, here are three signs that Lockheed Martin is a buy:
- Shareholders have witnessed 12 consecutive years of increased dividends, with the payout rising from 11 cents quarterly in 2002 to $1.50 current — a more than 13-fold improvement! And just in case you think the dividend growth is over, LMT stock touched up its dividend by another 13% last year. Investors are reaping the benefits of LMT 3.2% dividend yield at current pricing.
- In addition to a strong history of dividends, LMT stock also has a strong track record lately; shares have skyrocketed over 25% in the past year, roughly doubling the performance of the S&P 500.
- Beating analysts’ estimates of $11.9 billion, Lockheed Martin generated $12.5 billion in revenue according to its Q4 earnings report, which totals out at an 8.6% growth rate when compared with last year’s same quarter earnings. Four out of five LMT segments (Aeronautics, Missiles and Fire Control, Space Systems, and Mission Systems and Training) reported year-over-year sales increases last year, earnings were up 20%, and LMT exited 2014 with both sales growth and an impressive backlog of nearly $81 billion — more than the market cap of the entire company right now.
- While Lockheed admittedly guided down for fiscal 2015, the company still is undeniably in growth mode and is projecting impressive growth in fiscal 2016. On top of that, LMT has a strong history of beating expectations no matter the broader headwinds for the defense sector.
- As proof that the future is bright for LMT stock, reports show R&D was up 8% in 2014 to ensure strong earnings and future growth.
Even with Q4 coming off a bit lukewarm, the global defense giant is a definite buy as it continues to demonstrate its strength in a challenging market.
As of this writing, Anna Rider did not hold a position in any of the aforementioned securities.