Lockheed Martin (LMT), Raytheon (RTN) and Northrop Grumman (NOC) Attract Investors with Yield Despite Defense Budget Uncertainty

November 9, 2012

Defense giants Lockheed Martin (LMT), Raytheon (RTN) and Northrop Grumman (NOC) attract investors into the defense space despite uncertainty in the federal defense budget for the upcoming years through aggressive cost controls and utilizing favorable interest rates and their strong cash flows to increase shareholder yield, says Kenneth Herbert, Senior Vice President of Equity Research at Wedbush Securities.

“Defense companies like Lockheed Martin, Northrop Grumman and Raytheon have successfully deployed their relatively strong cash flows to increase share repurchases and dividends, which have made these attractive yields,” Herbert said. “Second, most firms with defense exposure have aggressively started to reduce their cost structure, which has also helped earnings hold up.”

Herbert uses Lockheed Martin as an example of the large defense companies, saying LMT’s yield can be more attractive than fixed income investing given the risk profile, and he also says investors could further reduce their risk profile by looking into companies with exposure to commercial ventures.

“If you’ve got a stock like a Lockheed Martin that’s giving you a 4% to 4.5% dividend yield even at over $90 a share, and comparatively, if you do invest in fixed income instruments for that kind of risk profile, that’s a fairly attractive yield,” Herbert said.