A Seeking Alfa contributor said that Lockheed Martin (LMT) was one of 17 stocks that could double its dividend payments. It sounded like a recommendation to buy to me. So I became curious about Lockheed’s rise to almost becoming a high dividend stock yielding above 6%.
I used to work for Lockheed Martin. The stock was near $52.00 per share when I started working there in 2004. When I left in 2007 the stock price was hovering around $111.00. The stock has fallen to $75 since that time. I think it will fall still lower with government budget cuts that will not go away due to over promises on welfare and warfare.
Lockheed Martin (LMT)
Market price: $76.32
Shares outstanding: 335.62 million shares
Market capitalization: $25.61 billion
Lockheed’s stock fell to $53.10 at the bottom in March 2009. LMT stock traded at 6.2 times average adjusted earnings at the bottom. I think the coming worldwide recession will give you an opportunity to buy LMT much lower than it is today due to government budget cuts.
Dividend record: LMT is a steady dividend payer and grower as you can see in the last five years of dividend payment history below.
Dividend: $1.00 per share (quarterly) starting at next dividend payment
http://www.reuters.com/finance/stocks/LMT/key-developments/article/2404076
Dividend yield: 5.2% [$4.00 (annual)/$76.32 share price]
Dividend payout ratio: 53.2% [$4.00 dividend/$7.51 estimated 2011 EPS]
Earning power: $8.57 per share @ 335.62 million shares
(Earnings adjusted for changes in capitalization; LMT has been buying back shares)
EPS Net inc. Adj EPS Shares
2006 $5.80 $2,529 M $7.54 436 M
2007 $7.10 $3,033 M $9.04 427 M
2008 $7.86 $3,217 M $9.59 410 M
2009 $7.78 $3,024 M $9.01 389 M
2010 $7.94 $2,926 M $8.72 368 M
2011E $7.51 $2,521 M $7.51 335.62 M
Six year average EPS = $8.57
Consider CONTRARIAN buying below $68.56 (8x average adjusted EPS)
Consider VALUE buying below $102.84 (12x average adjusted EPS)
Consider INVESTMENT buying between $102.84 and $171.40 (8x -12x average adjusted EPS)
Consider SPECULATIVE selling above $171.40 (20x average adjusted EPS)
Balance sheet: I don’t like the huge run-up in liabilities and the corresponding reduction in shareholder equity (this should be investigated).
Book value per share: $9.24 (TTM)
Price to BV ratio: 8.25 (not good)
Current Ratio: 1.15 (> 2.0 is good)
Quick Ratio: 0.76 (> 1.0 is good)
Financial Leverage: 10.86 (most recent quarter; not good)
Conclusion: Lockheed Martin pays a moderate dividend that is fairly safe right now. It would be tempting to buy below $68.56 per share, but beware of the impact of government budget cuts. I think that $8.57 average adjusted earnings will continue to fall as the government budget cuts grow. Lockheed’s balance sheet is weak. This would scary me away from the stock until I could figure out why the liabilities skyrocketed in 2008. There has been no visible improvement in the balance sheet yet.
Disclosure: I don’t own LMT.
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