Lockheed Martin Corp. (NYSE:LMT) has recently announced a welcome development for its shareholders, with its board of directors approving a 5% increase in the quarterly dividend, now set at $3.15 per share. This move marks the 21st consecutive year in which the company has raised its dividend payouts.
With this latest dividend hike, Lockheed Martin will now be disbursing an annual dividend of $12.60 per share. This translates to an annual dividend yield of 3.14%, calculated based on a share price of $400.73 as of October 6, 2023. Notably, LMT’s current annualized dividend yield surpasses the Zacks S&P 500 composite’s yield of 1.48%.
In addition to the dividend increase, Lockheed’s board has also given the green light for an expansion of its share repurchase program, enabling the company to buy back up to an additional $6 billion worth of common stock. This substantial increase effectively doubles the total authorization for the existing program, bringing it to $13 billion for future stock purchases.
These moves underscore Lockheed’s robust financial position and its ability to generate significant profits, which in turn, allow it to reward shareholders with both increased dividends and share buybacks.
The question arises: Can Lockheed Sustain Its Dividend Increases?
The sustainability of a company’s commitment to regularly distribute extra cash to shareholders through dividends or buybacks hinges on its financial strength and cash generation capabilities. Lockheed has demonstrated its prowess in this regard, reporting a noteworthy 6.5% year-over-year increase in its second-quarter 2023 bottom line.
Bolstering its financial strength, Lockheed ended the second quarter of 2023 with cash and cash equivalents totaling $3.67 billion, compared to $2.55 billion at the end of 2022.
Lockheed’s promising growth prospects are anchored in its involvement in battle-proven programs like the F-35 Lightning II, C-130J, Black Hawk, CH-53K, THAAD, and more, which continually generate orders and bolster the company’s backlog. As of June 25, 2023, Lockheed’s backlog stood at an impressive $158.01 billion, a notable increase from $145.09 billion at the end of the first quarter of 2023. This robust backlog further solidifies Lockheed’s revenue generation potential.
Additionally, improved budgetary allocations are contributing to strong revenue growth and, consequently, elevated dividend payments. Notably, the U.S. fiscal 2024 defense budget includes funding for 83 F-35 aircraft and supplemental funding for munitions investment.
On the back of such solid financial fundamentals, Lockheed has recently raised its earnings guidance for 2023, now expecting earnings per share in the range of $27.00 to $27.20, up from the previous guidance of $26.60 to $26.90. Furthermore, Lockheed anticipates generating free cash flow amounting to $6.2 billion in 2023.
In light of these factors, Lockheed’s financial stability and strong outlook suggest that it is well-positioned to continue offering substantial dividend hikes to its shareholders, akin to the most recent one.
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