Dividend investing is a long-term strategy focused on building a portfolio of stocks that provide a steady, reliable stream of passive income. The goal is not just to find the highest possible yield, but to find companies that can sustain and grow their payouts over time. To identify these opportunities, we can use a structured screening process. The "Best Dividend" screen is designed to filter for stocks that score highly on dividend quality, while also ensuring the underlying business is profitable and financially healthy enough to support that dividend. This prevents investors from chasing a high yield that might be at risk. By applying filters for a minimum ChartMill Dividend Rating, along with decent scores for Profitability and Health, the screen narrows the universe to companies with a stronger foundation for dividend reliability.
A stock that appears on this screen is LOCKHEED MARTIN CORP (NYSE:LMT). As a global security and aerospace company, its business model is rooted in long-term government and defense contracts, which often provide a more predictable revenue stream. This type of operational stability is a key ingredient for a sustainable dividend policy, making it a candidate worth a closer look.
Dividend Strength: The Core Criterion
The primary filter for this strategy is a high dividend rating, and Lockheed Martin meets this standard with a ChartMill Dividend Rating of 7 out of 10. A deeper look into the components of this rating reveals why the stock is attractive for income-focused investors.
The company offers a Yearly Dividend Yield of 2.73%. While this might not seem extreme, context is crucial. This yield is significantly higher than the industry average of 0.41% and also beats the S&P 500 average of 1.78%. For a company of Lockheed Martin's size and stature, this is a solid return.
Beyond the current yield, the track record is exemplary:
- Consistent Growth: The dividend has grown at an average annual rate of 6.46%. This is not explosive growth, but it is steady and reliable, which is exactly what dividend investors want to see.
- A Proven History: The company has been paying a dividend for at least 10 years and has not decreased its payout in the last 5 years. This long-term consistency is a strong signal of management's commitment to returning capital to shareholders.
The one area that requires attention is the Payout Ratio of 65.74%. While not in the danger zone, the fundamental report notes that this level is not considered fully sustainable. This means that while the company currently earns enough to cover its dividend, there is less room for error if earnings were to dip unexpectedly. It is a factor to watch, but it does not outweigh the strong positive signals of yield, history, and growth.
Supporting Profile: Healthy Profitability and Stability
A high yield is only valuable if the company remains profitable. The screen's filter for a minimum Profitability rating ensures we are not looking at a company in decline. Lockheed Martin earns a Profitability Rating of 6 out of 10, with several standout metrics that support its ability to pay dividends.
- Excellent Returns: The company shows best-in-class returns on capital. Its Return on Equity (ROE) is 64.00%, and its Return on Invested Capital (ROIC) is 17.12%. Both figures outperform over 97% of its industry peers. This suggests the company is highly efficient at turning its capital into profit.
- Consistent Earnings: A fundamental check is that the company has been profitable each year for the past 5 years and has maintained positive operating cash flow. This provides the cash necessary to fund dividend payments.
The Health Rating of 5 out of 10 is more of a mixed bag, which is typical for a large, highly leveraged industrial company. The most critical health metric for dividend investors is solvency. Here, Lockheed Martin performs well:
- Healthy Solvency: Its Altman-Z score of 3.45 indicates a low risk of bankruptcy, a crucial check for long-term safety.
- Manageable Debt: The Debt to Free Cash Flow ratio is 3.66, meaning the company could theoretically pay off all its debt in under four years with its free cash flow.
While the liquidity metrics (like the quick ratio) are weak compared to peers, the company's solvency and strong free cash flow generation are the more important factors for a dividend investor focused on the long haul.
Valuation and Growth: The Forward-Looking View
For a dividend strategy, current valuation is less critical than growth potential, but it is still relevant. An excessively high entry price can dampen future total returns. Lockheed Martin appears reasonably valued.
- Price/Earnings Ratio: At 18.12, the P/E is lower than 94% of its industry peers and also below the S&P 500 average. This suggests the stock is not overly expensive.
- Price/Forward Earnings: Looking ahead, the forward P/E of 15.70 is also cheap relative to its industry, which provides a margin of safety for new investors.
- Growth: While recent earnings per share growth has been slightly negative (-1.71%), the future picture is brighter. The Earnings Per Share (EPS) is expected to grow by 7.08% yearly in the coming years. More importantly, the growth rate is accelerating, which is a positive sign for future dividend increases.
Analyst Views
The overall fundamental rating for Lockheed Martin is a 5 out of 10, which reflects a balanced picture of a stable but not high-growth company. The valuation is attractive, and the dividend is strong, but the profitability and health scores are average. For a detailed look at the specific metrics that make up this rating, you can review the full fundamental analysis report for LMT.
Conclusion
Lockheed Martin presents an attractive case for dividend investors. It combines a well-above-average dividend yield with a long history of consistent payments and growth. While its profitability and health are not top-tier, they are sufficient to support the business, and its solvency remains strong. The stock's reasonable valuation adds to its appeal, suggesting that investors are not overpaying for the income stream.
This analysis is based on just one stock from the screening list. You can run the same screen yourself to discover other potential candidates that fit this disciplined dividend strategy. For a full list of results and to adjust the parameters to your own preferences, check out the Best Dividend Stocks screen here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investment strategies and investments involve risk of loss. You should always conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Read full article here »
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LOCKHEED MARTIN CORP (NYSE:LMT) Offers a Strong Case for Dividend Investors
Dividend investing is a long-term strategy focused on building a portfolio of stocks that provide a steady, reliable stream of passive income. The goal is not just to find the highest possible yield, but to find companies that can sustain and grow their payouts over time. To identify these opportunities, we can use a structured screening process. The "Best Dividend" screen is designed to filter for stocks that score highly on dividend quality, while also ensuring the underlying business is profitable and financially healthy enough to support that dividend. This prevents investors from chasing a high yield that might be at risk. By applying filters for a minimum ChartMill Dividend Rating, along with decent scores for Profitability and Health, the screen narrows the universe to companies with a stronger foundation for dividend reliability.
A stock that appears on this screen is LOCKHEED MARTIN CORP (NYSE:LMT). As a global security and aerospace company, its business model is rooted in long-term government and defense contracts, which often provide a more predictable revenue stream. This type of operational stability is a key ingredient for a sustainable dividend policy, making it a candidate worth a closer look.
Dividend Strength: The Core Criterion
The primary filter for this strategy is a high dividend rating, and Lockheed Martin meets this standard with a ChartMill Dividend Rating of 7 out of 10. A deeper look into the components of this rating reveals why the stock is attractive for income-focused investors.
The company offers a Yearly Dividend Yield of 2.73%. While this might not seem extreme, context is crucial. This yield is significantly higher than the industry average of 0.41% and also beats the S&P 500 average of 1.78%. For a company of Lockheed Martin's size and stature, this is a solid return.
Beyond the current yield, the track record is exemplary:
The one area that requires attention is the Payout Ratio of 65.74%. While not in the danger zone, the fundamental report notes that this level is not considered fully sustainable. This means that while the company currently earns enough to cover its dividend, there is less room for error if earnings were to dip unexpectedly. It is a factor to watch, but it does not outweigh the strong positive signals of yield, history, and growth.
Supporting Profile: Healthy Profitability and Stability
A high yield is only valuable if the company remains profitable. The screen's filter for a minimum Profitability rating ensures we are not looking at a company in decline. Lockheed Martin earns a Profitability Rating of 6 out of 10, with several standout metrics that support its ability to pay dividends.
The Health Rating of 5 out of 10 is more of a mixed bag, which is typical for a large, highly leveraged industrial company. The most critical health metric for dividend investors is solvency. Here, Lockheed Martin performs well:
While the liquidity metrics (like the quick ratio) are weak compared to peers, the company's solvency and strong free cash flow generation are the more important factors for a dividend investor focused on the long haul.
Valuation and Growth: The Forward-Looking View
For a dividend strategy, current valuation is less critical than growth potential, but it is still relevant. An excessively high entry price can dampen future total returns. Lockheed Martin appears reasonably valued.
Analyst Views
The overall fundamental rating for Lockheed Martin is a 5 out of 10, which reflects a balanced picture of a stable but not high-growth company. The valuation is attractive, and the dividend is strong, but the profitability and health scores are average. For a detailed look at the specific metrics that make up this rating, you can review the full fundamental analysis report for LMT.
Conclusion
Lockheed Martin presents an attractive case for dividend investors. It combines a well-above-average dividend yield with a long history of consistent payments and growth. While its profitability and health are not top-tier, they are sufficient to support the business, and its solvency remains strong. The stock's reasonable valuation adds to its appeal, suggesting that investors are not overpaying for the income stream.
This analysis is based on just one stock from the screening list. You can run the same screen yourself to discover other potential candidates that fit this disciplined dividend strategy. For a full list of results and to adjust the parameters to your own preferences, check out the Best Dividend Stocks screen here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investment strategies and investments involve risk of loss. You should always conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Read full article here »