Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says Lockheed Martin Corporation (LMT) is a timely investment, as the company has been aggressive about raising its dividend and has reached a favorable part of the cycle.
“The company generates very strong cash flows, and it’s a very asset-light business, surprisingly,” Elmaleh said.” They are having a tailwind now on some of their pension costs. The way their pensions work, they pay out the pensions, but then the federal government pays it back, and the government has been a bit slow about it. Now there is some legislation that provides them a catch-up period. So during this catch-up period, their cash flows are going to be very strong.”
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Elmaleh also points to Lockheed Martin’s position in the product cycle, which is translating into a good stock price, he says.
“They spend a lot of money with new projects like the F-35, and the upfront costs are very high. But as they move to different stages of their maturity, the cash flow and the margins start to expand. Their mix of projects is reaching a favorable part of the cycle. They are getting more mature, and they are able to sell some more internationally. And that’s a higher-margin business for them,” Elmaleh said.
“Also the dividend yield is very strong, and they have been able to raise it,” Elmaleh added.
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