LMT dividend pay-outs and share buybacks
Lockheed Martin (LMT) has a long history of strong cash flow generation. It remains a key focus for management. However, what’s more important to retail investors is Lockheed Martin’s commitment to returning at least 50% of its free cash flow to its shareholders. It does this through dividend payouts and share buybacks.
The company also has a long history of dividend payouts and has been paying dividends since 1982.
Lockheed Martin’s dividend pay-out has shown a steady increase over the past ten years. A dividend payout is the percentage of net income the company pays out to its shareholders. From a mere 24% in 2003, the company’s dividend payouts have increased to 52% in 2013.
For the last fiscal year, 2013, LMT paid $1.5 billion in dividends. This payout was an increase of ~15%. In fact, for the past 11 quarters, the company has consistently given double-digit dividend growth to its customers. The company has paid out $5.14 in dividends for the last 12 months. With the recent 13% hike in dividends announced in September 2014, the annual dividend is expected to go up to $6.
Increasing dividends have led to increasing dividend yields as well. Most other defense contractors—like Northrop Grumman (NOC), Raytheon (RTN), and the Boeing Company (BA), which are a part of the iShares U.S. Industrials ETF (IYJ)—also have high dividend yields. But LMT’s dividend yields, at 3.4%, are the highest in the group.
In 2013, the company bought back 16.2 million shares for $1.8 million. For fiscal 2014, the company repurchased 7.8 million shares for $1.224 billion (~2% of its average market cap year-to-date). LMT also recently announced an increase of $2 billion to its buyback program.
Future growth expectations
The company continues its commitment to returning value to shareholders. However, its dividend growth rate has slowed down to ~15% last year from ~25% a few years ago. The company has also slowed its share repurchase program. The recent increase in share buybacks is lower than the $3 billion increase last year and $2.5 billion increase announced in 2011.
Both these factors indicate the company conserving its cash for the future. With continued uncertainty over the impact of sequestration, you can’t expect the company to continue its past rate of high growth in dividends.