Lockheed Martin: Stable Defense Contractor With Strong Dividend Profile
Founded in 1912 during the dawn of flight, Lockheed Martin is one of the world's largest defense contractors and fighter aircraft suppliers. Though best known for its F-35 joint strike fighter, Lockheed's business spans various combat aircraft, missile defense systems, military helicopters, and satellite systems.
Most of Lockheed Martin's business is with the U.S. government, with international governments contributing almost all of the remainder.
The need to defend territory and the desire to wield power is as old as civilization, and military advantage has always played a significant role in human affairs.
Even in times of relative peace and prosperity, nations worldwide invest around $2 trillion annually to protect their people and national interests, project power, and gain leverage in negotiations.
Essentially, Lockheed Martin's products solve a timeless problem that its primary customer (the U.S.) cares about deeply. Lockheed Martin also enjoys a scale and reputation that make the firm an ideal partner for the U.S. government.
For one, the government's trust is hard to win, especially when developing complex and expensive weapon systems critical to national security. Few, if any, other firms have as much experience and capacity as Lockheed to take massive decades-long defense projects from start to finish.
Lockheed can also invest over $1 billion per year in research and development to keep the company on the cutting edge, a sum that smaller rivals can't match. Additional research and development work is funded by Lockheed's government customers, creating even more integrated relationships which are difficult to disrupt.
In addition, the bids Lockheed participates in require sizable upfront capital investments. Few rivals can afford to risk large investments on uncertain, binary outcomes, especially when they're up against Lockheed.
These factors have caused the defense industry to consolidate over the years, limiting the number of competitors Lockheed bids against to keep its backlog full. In many ways, Lockheed has become too big and too important to fail — not just to the U.S. government but also to many overseas allies.
That said, while national defense is a timeless problem, it can be rather subjective. The nature of defense is that it's rarely used, at least to full capacity, and no one knows how significant a threat is until it materializes.
As a result, opinions vary widely on how much to spend on defense, with some politicians decrying a need to reduce the defense budget while others promote spending more to ensure the U.S. maintains its status as a superpower.
This political dynamic means defense spending can be highly cyclical and unpredictable, causing Lockheed Martin's pace of earnings and dividend growth to fluctuate depending on the current budget climate.
But management positions the company to weather these shifts in spending. Coupled with Lockheed's A- credit rating and a large backlog of contracted work, the firm has paid uninterrupted dividends since 1995 and has raised its payout yearly since 2003.
Overall, Lockheed Martin enjoys substantial competitive advantages in highly-specialized industries that solve timeless problems. Rivals can't compete with Lockheed's scale, expansive product offering, and entrenched relationships with the government, which should continue supporting the firm's dividend growth streak.
Most of Lockheed Martin's business is with the U.S. government, with international governments contributing almost all of the remainder.
The need to defend territory and the desire to wield power is as old as civilization, and military advantage has always played a significant role in human affairs.
Even in times of relative peace and prosperity, nations worldwide invest around $2 trillion annually to protect their people and national interests, project power, and gain leverage in negotiations.
Essentially, Lockheed Martin's products solve a timeless problem that its primary customer (the U.S.) cares about deeply. Lockheed Martin also enjoys a scale and reputation that make the firm an ideal partner for the U.S. government.
For one, the government's trust is hard to win, especially when developing complex and expensive weapon systems critical to national security. Few, if any, other firms have as much experience and capacity as Lockheed to take massive decades-long defense projects from start to finish.
Lockheed can also invest over $1 billion per year in research and development to keep the company on the cutting edge, a sum that smaller rivals can't match. Additional research and development work is funded by Lockheed's government customers, creating even more integrated relationships which are difficult to disrupt.
In addition, the bids Lockheed participates in require sizable upfront capital investments. Few rivals can afford to risk large investments on uncertain, binary outcomes, especially when they're up against Lockheed.
These factors have caused the defense industry to consolidate over the years, limiting the number of competitors Lockheed bids against to keep its backlog full. In many ways, Lockheed has become too big and too important to fail — not just to the U.S. government but also to many overseas allies.
That said, while national defense is a timeless problem, it can be rather subjective. The nature of defense is that it's rarely used, at least to full capacity, and no one knows how significant a threat is until it materializes.
As a result, opinions vary widely on how much to spend on defense, with some politicians decrying a need to reduce the defense budget while others promote spending more to ensure the U.S. maintains its status as a superpower.
This political dynamic means defense spending can be highly cyclical and unpredictable, causing Lockheed Martin's pace of earnings and dividend growth to fluctuate depending on the current budget climate.
But management positions the company to weather these shifts in spending. Coupled with Lockheed's A- credit rating and a large backlog of contracted work, the firm has paid uninterrupted dividends since 1995 and has raised its payout yearly since 2003.
Overall, Lockheed Martin enjoys substantial competitive advantages in highly-specialized industries that solve timeless problems. Rivals can't compete with Lockheed's scale, expansive product offering, and entrenched relationships with the government, which should continue supporting the firm's dividend growth streak.
