Lockheed Martin Corporation (LMT) is prudent in returning a substantial portion of its free cash flow to shareholders through share repurchases and incremental dividends.
The company recently boosted its quarterly dividend by 10.5%, or 6 cents per-share. This took the quarterly dividend to 63 cents per share from the pre-existing dividend of 57 cents. The dividend is payable on Dec. 31, 2009 to shareholders of record as of Dec. 1, 2009.
Historically, Lockheed Martin has been able to augment shareholders’ returns by more than 21% over the last five years through its dividend program. Earlier, in the third quarter of 2008, the company authorized a 35.7% increase of its quarterly dividend from 42 cents to 57 cents per share.
Separately, Lockheed Martin recently authorized repurchase of an additional 20 million of its common stock under its ongoing share repurchase program initiated in October 2002. The new action will increase the total share repurchase authorization to 178 million shares from 158 million shares.
Through the end of the first half of fiscal 2009, the company had repurchased a total of 138 million shares. This leaves aside 40 million in share repurchase authorizations pending. As of June 28, 2009, the company had approximately 384 million shares of common stock outstanding. Lockheed Martin has one of the strongest balance sheets among its peers with a low debt-to-capitalization of 55.8% after the first half of fiscal 2009.
The company continues to be a strong cash generator with its annual operating cash flow touching approximately $4.4 billion during fiscal 2008. It closed the first half of fiscal 2009 with cash and cash equivalents of $2.7 billion, short-term investments of $65 million and a $1.5 billion revolving credit facility. Total debt of approximately $3.8 billion was mainly in the form of fixed rate instruments. This provides ample opportunity for appreciation of the company’s earnings per share through share repurchase.
Lockheed Martin remains a key player within the aerospace & defense segment and mainly competes with The Boeing Company (BA), Northrop Grumman Corporation (NOC) and General Dynamics Corporation (GD).
Going forward, we believe the company has significant upside potential based on strong defense outlays throughout 2009–10, above-industry average return-on-invested-capital, and expanding product lines. However, these are offset by risks related to key projects execution, fate of high cost platform programs, lower top-line results in the Aeronautics segment, higher pension liability and lower delivery of F-16s in recent times. As such, we maintain our Neutral recommendation on the shares.
Read the full analyst report on “LMT”
Read the full analyst report on “BA”
Read the full analyst report on “NOC”
Read the full analyst report on “GD”
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