On the heels of selling APD this month, I decided to purchase more of an existing stock that I hold to replace it. Read on to see what and why.
What I bought
I bought 5 shares of Lockheed Martin (LMT) at $240.49 plus a $2 trading commission for a total of $1,204.45. Based on a current yield of 2.75% this purchase should add about $33 of yearly income and brings my total number of shares that I own to 5.7033.
LMT is the world’s largest defense company that’s heavily dependent on the US government for revenue (~ 80%). It acquired Sikorsky last year and spun-off its IT division, leaving it with Aeronautics, Missiles & Fire Control, Mission Systems & Training plus Space Systems. The IT division combined with Leidos Holdings (LDOS) last month and I chose not to participate in the share offer for this spinoff which traded LMT shares for Leidos shares.
Why I bought LMT
I like LMT because it has a wide-moat, with significant connections to the Department of Defense. It’s hard for new competitors to enter the defense industry. Lockheed has been in the news of late because of concerns about the fifth generation F-35 combat aircraft, plus issues about its Littoral Combat Ship.
However Lockheed make the only fifth-generation combat aircraft that are in service today, so over the long-term this should be a fairly reliable income stream considering the costs involved in starting a new aircraft program. I expect that drones will replace manned aircraft though and I think LMT is well positioned to expand in this area.
The US presidential elections may have a big effect on the stock price; with possibly lower prices / outlook if a democratic congress / president is elected. I’m not too concerned about that as I plan to hold the stock for a long time; the predicted election results are likely factored into the stock and I consider the dividend yield is good enough at 2.75%.
In terms of financials, LMT has a dividend payout ratio of about 55% which has been creeping up from low 20’s over the last 10 years, but has stabilized at around 50% for the last four years.
With a 13-year dividend growth history, the dividend has grown at an average 19% over the last ten years with the most recent increase being 10%.
I’m less concerned about fair-price valuations since I’m investing for income growth over capital gains. LMT is probably a little over-valued right now and it’s about level with the average S&P P/E of 19.8.
Although I’m gradually reducing my individual stock holdings as a percentage of my total portfolio, I’m not in a hurry to reach the target allocation of 10%. This month I’ve already put the $1,116.40 proceeds of APD’s sale back into my core holding of VHDYX, plus an additional $1,400 from my standard automatic investment. So despite this purchase, the individual share allocation will continue to drop a little.
These shares are held in my Vanguard brokerage where it’s quicker and cheaper to buy more in the future. I hold 0.7 LMT shares at Capital One for a total value of $169 from an old Sharebuilder purchase plan. I’ll likely sell those partial shares in October / November after the final ex-dividend date this year. Currently I’m up $34 against my original cost basis.
Quote of the Day
The best argument for mutual funds is that they offer safety and diversification. But they don’t necessarily offer safety and diversification.