Lockheed Martin

An indecent proposal with a future

As a private investor, you're always faced with the tricky question of which asset class or company to put your money into. While some only buy shares in ethically justifiable and sustainable companies, others build themselves a small sin portfolio. Here on DividendeOhneEnde, I want to introduce companies that have developed great and maintain an exemplary dividend policy - regardless of morals and ethics. In the end, the question of whether and how much to invest is always one everyone has to answer for themselves.

Today I'm going to introduce you to the defense and technology company Lockheed Martin in a bit more detail. Headquartered in Bethesda, Maryland (USA), the company operates mainly in four different sectors: military and civil aeronautics; missiles as well as unmanned/manned combat systems; several mission systems for land, sea and air; and satellites and spacecraft. That makes Lockheed Martin the largest defense company in the world.

The origins and business model of Lockheed Martin Corp.

Flying has always been something special for humankind. Back in 1487, the universal genius Leonardo da Vinci sketched an aerial screw with which one could theoretically have explored the skies. However, the first gliding flights didn't succeed until the end of the 19th century. A few clever engineers paved the way for the Wright brothers, who at the beginning of the 20th century made it their mission to build manned, motorized airplanes. In 1903, the first flight attempts succeeded - true milestones in aviation history. Businessman Glenn Luther Martin was also so fascinated by flying that in 1908 he built his own airplane in a rented church. After that worked out, he founded his company, the Glenn L. Martin Aircraft Company, in 1912. Together with 14 employees, he built and marketed his airplanes. The customer back then was the still fairly young US air force unit. To position itself better for World War I, the company merged with the Wright Company in 1916. However, the cooperation didn't go as planned, and only a year later they split up again. The aircraft kept evolving, and the company also supplied the US Army in World War II. In 1961, it merged with the building materials company American-Marietta Corporation, and the Martin Marietta Corporation was created.

The brothers Allan and Malcolm Loughead were also enthusiastic aircraft builders. After their first company quickly went bust due to lack of demand, they founded the Loughead Aircraft Manufacturing Company in 1916. There they made seaplanes. Malcolm, however, turned away from aviation and later developed a novel hydraulic system. Allan, on the other hand, kept expanding his company and restructured it in 1926. The Lockheed Aircraft Company was born. The new name was derived from the family name - later the brothers also changed their surnames to Lockheed. In World War II, the company developed and sold a total of 19,278 military aircraft. In the postwar period and during the Cold War, too, it worked closely with the US government. In March 1995, it finally merged with Martin Marietta Corp. to operate together as the Lockheed Martin Corporation. A year later, the building materials division Martin Marietta Materials was taken public as an independent company.

With jet fighters, stealth aircraft, attack helicopters, missile defense systems, communications satellites and much more, Lockheed Martin is today the world's largest defense company. The biggest source of revenue is still the US Department of Defense. But bit by bit, the other business areas are growing too. Meanwhile, space fever has broken out again among the big tech companies as well. Besides Elon Musk's SpaceX and Richard Branson's Virgin Galactic, Jeff Bezos' Blue Origin is also working on space exploration missions. The Amazon founder is currently working closely with Lockheed Martin to fly to the moon again. But this time to stay there ...

What does the future hold for Lockheed Martin?

One circumstance that will surely please the defense company's executives is Donald Trump's presidency. He raised the defense budget by almost 4.6% to a whopping 649 billion US dollars for 2018. And that's even though the USA was already the undisputed number 1 worldwide in military spending. Apart from that, in February 2019 Trump founded the "US Space Force". His new space army is meant to ensure US dominance in space. Lockheed Martin can surely make good money here. Just think of the strong moat the company has built up by now. Hardly any other defense manufacturer has worked with the US government as often and as intensively. By now it can draw on so much know-how that it will be very difficult for competitors to get in on the action. On the other hand, it has to be said very clearly that the company is highly dependent on the USA. Even if it's currently trying to break away from that a bit - anyone investing should be aware of it. It's an opportunity and a risk at the same time.

From my point of view, though, the outlook for Lockheed Martin remains positive. For one thing, the company recently landed some big contracts. Among them the sale of 32 fighter jets to Poland, which should bring in around 6.5 billion US dollars. In addition, the US government bought some new missiles, and in a joint venture with MBDA the company also submitted a multi-billion offer for missile defense systems to the German Bundeswehr. Furthermore, Lockheed Martin together with Boeing (also a joint venture, "United Launch Alliance") was awarded a moon mission contract by the US government. According to NASA, humans are supposed to land on the moon again as early as 2024 - for this, Bezos had the Blue Moon lander developed. On this mission, Lockheed Martin is supposed to carry the astronauts back to the space station after the moon landing. Long story short: the company is working on many projects that should sooner or later bring a lot of money into its coffers.

And what's the story with the dividend?

Shareholders have been sharing in the company's profits since the merger into Lockheed Martin Corporation in 1995. After the dividend was cut in 1999, it wasn't raised again until 2003. Since then, however, the dividend has been increased year after year - the average over the last 10 years is 14.8%. The current dividend yield is 2.3% and the payout ratio a solid 43%. Currently, the company can call itself a Dividend Achiever.

Conclusion:
Well, from an investor's point of view, this is really not a bad company. It's currently very broadly positioned and is working with other big companies on many forward-looking technologies. But this can be an attractive investment not only for growth strategists, but also for dividend investors. As I wrote above, in the end everyone has to settle the question of morality for themselves.