I decided to sell out of a (tiny) position this week and to re-invest the (tiny) gain in a new (tiny) position via Sharebuilder. This purchase will not be shaking up the stock market…
I sold CDK…
I gained 1.6 shares of CDK Global Inc (CDK) this month as a result of Automatic Data Processing (ADP) spinning off their auto dealer services segment. I like ADP and think that they’re a very stable company with good cash flow and dividend payout. But I’m not so sure of CDK or what their dividend aspirations are. So I decided to sell the stock, really just based on the desire to put that money to work in a dividend paying stock.
I sold the shares at $26.26 and gained $35.13 after the $6.95 Sharebuilder commission. See, I wasn’t kidding about the tiny amount in the introduction!
…and bought LMT
What my left brain gained in selling, my right brain decided to spend on Lockheed Martin. I’ve been looking at LMT for a while now and I think that they have a good long term outlook with future emerging technologies and markets. The short term is not so rosy with Government budget cuts and Sequestration, however despite lower revenue this quarter they did make higher profits. Next year’s growth will likely be very small. The stock price went up however, so somebody out there liked the news.
LMT is the largest US defense contractor with a $55B market capitalization. They operate in 5 segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST), and Space Systems; employing 115,000 people around the world. They’ve been in the news recently from a number of different sources – the Orion spacecraft designed for long-duration space exploration, their Maven spacecraft reaching Mars orbit, the recent launch of the LCS Detroit combat ship, various announcements about the F35 Lightning II aircraft and a curious announcement about compact nuclear fusion technology which Henry also picked up on.
LMT is a Dividend Contender with an 11-year history of dividend growth. Dividends have been increased each November since 2003, and next month is no exception with the dividend increasing 13% from $1.33 to $1.5 per share, which gives a projected 3.4% yield based on today’s price. Payout ratio is 54% and has been increasing from the low 20’s in 2006-2008. So I would expect the future dividend growth to be lower than the 5-year annualized dividend growth rate of 18%.
P/E is comparable with the industry average (17.8 vs 17.4) and a little better than the S&P average of 18.4. For the last few years, LMT’s P/E has been significantly lower than the S&P average so relatively speaking it’s more expensive this year. 5-year estimated EPS growth is 10%.
It’s a little unfair to compare the two companies; one is brand new and there is little data available for it. But CDK clearly doesn’t meet my dividend screen and I’m not willing to wait around and see how it performs.
Lockheed Martin is on the cutting edge of R&D, and it’s also investing in several long term trends. Cybersecurity, Space exploration, nano-technology, future energy technology, autonomous drones and laser weaponry are all expanding fields that I hope to see become more mainstream by the time I retire!
I’m considering to use one of my Sharebuilder automatic investment credits to purchase a small amount of LMT each month as a home-grown Share Purchase Program as long as it continues to meet my rules. I’m still reviewing how much to put towards this and if I will include other companies in this methodology but my plan is to make small additions to a few core stocks each month and rely on dollar cost averaging. This will be a fairly small allocation and I’ll still maintain my weekly $300 purchase until I review my 2015 budget at the end of the year.
Full disclosure: I am long ADP and LMT.
Sources: Morningstar, Finviz, Yahoo Finance. While every attempt is made for accuracy, mistakes can happen. Please conduct your own research and due diligence before making any stock purchase.
Quote of the day
My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.