Growing tensions between the United States and Russia and China are increasing the value of defense contractors like Lockheed Martin (NYSE: LMT).
The USA and Russia are already in an outright conflict, foreign affairs expert Matthew Rojansky of the Kenan Institute told CNN. Rojansky made the statement on October 12, 2016, the day after White House Press Secretary Josh Earnest revealed that President Obama was considering “proportional responses” to alleged Russian hacking of American political groups.
Others believe that a war between the United States and China over the South China Sea is inevitable. Newsweek reported that many Chinese officials believe such a conflict is unavoidable in June.
Peace or War Lockheed Might Profit
If these disturbing predictions have any truth, Lockheed Martin certainly stands to profit. The defense contractor supplies America’s armed forces with everything from the Hit and Kill Missile for infantrymen; to the Littoral Combat Ship, a next-generation frigate for the Navy.
It also supplies America’s allies like Japan with weapons systems; such as the F-35 Lightning II Fighter Plane. Japan is expanding its military capacities to counter a growing threat from the People’s Republic of China.
For those who prefer a more peaceful future Lockheed Martin and Boeing (NYSE: BA) are collaborating in the United Launch Alliance (ULA). The ULA is developing the Space Launch System, a gigantic rocket capable of hauling 20 tons to Mars. That will compete with Elon Musk’s Space X and its’ Interplanetary Transportation System.
History teaches us that increased tensions lead to military buildups, which means more contracts for companies like Lockheed. Lockheed Martin stands to profit because it builds the kind of weaponry that would be used in such a conflict; including ships, missiles and fighter planes.
Lockheed Martin is Making Money
The rumors of war are making the future look bright for Lockheed Martin, but is it making money in the here and now? The financial numbers indicate the answer to that question is yes.
On June 30, 2016, Lockheed Martin reported some very impressive financial numbers including:
- $48.99 billion in revenues.
- $3.613 billion in in net income.
- A profit margin of 7.91%
- A free cash flow of $1.342 billion.
- Assets of $50.41 billion.
- Cash and short-term investments of $1.269 billion.
- $6.021 billion in cash from operations.
- $1.889 billion in cash from financing.
Business is good at the Military Industrial Complex
As you can see, Lockheed Martin has a lot of float; but its’ revenues are also growing dramatically. The company reported revenues of $45.4 billion in June 2015; that rose to $48.99 billion in June 2016. That made for a revenue increase of $3.59 billion over the course of 12 months.
That means business is certainly good at the military-industrial complex. Lockheed Martin’s net income has grown by $430 million over the past two years. The defense contractor reported a net income of $3.183 billion in June 2014 to $3.599 billion in June 2015 and $3.613 billion in June 2016.
The increase in cash from operations is also very impressive that number grew by $3.002 billion between June 2015 and June 2016. Lockheed Martin took in $3.009 billion in cash from its operations in second quarter 2015 and $6.021 billion in second quarter 2016.
Lockheed Martin is a Good Income Investment with a Growing Dividend
Okay, so Lockheed Martin is a growing company that is making a lot of money, but is it a good investment? The answer to that question is yes:
Lockheed’s investors received a return of equity of 119.9% on June 30, 2016, which is phenomenal. LMT shareholders also received a dividend yield of 2.84% on October 12, 2016. That dividend yield has been very constant for a long time – it has been over 2.8% for the past five years since October of 2011.
Owners of LMT are scheduled to receive a dividend of $1.82 a share on December 1, 2016. That’s a 17¢ increase over September 1, 2016, when Lockheed Martin investors received a cash dividend of $1.65.
What’s more impressive is that Lockheed has paid a cash dividend for every quarter since August 30, 2004. That payout did not even stop during the economic meltdown of 2007 and 2008.
Good Diversified Technology Investment
This makes Lockheed a good diversified technology investment for troubled times. It pays a good income, and has a customer Uncle Sam who is usually capable of paying his bills with tax money.
The growing hysteria about conflicts with China and Russia; as well as the prospect of a new space race to Mars ignited by Elon Musk’s colonization schemes, make the prospect of increased business for LMT likely. If you are looking for an income stock for uncertain times and willing to pay a high price Lockheed Martin might be for you.
There are some drawbacks to Lockheed Martin including a high price; $232.59 a share on October 14, 2016. Many will also have moral objections to investing in an armaments maker but for those who can stomach it, LMT might be the perfect stock for the 21st Century.