I'm reporting a trade from last Friday. I purchased 23 LMT at 87.04 reducing my cost basis to $90.22/share. LMT currently yields 5.3% and these 23 share will provide another $105.80/year in income. I'm fully allocated in LMT and don't plan on adding to this company again for a while.
Defense contractors have taken a little bit of a hit after defense budgets were cut earlier this year. A criticism of LMT is that they carry a lot of debt. They also have a higher payout ratio than some other defense contractors.
Another defense contractor that I'm interested in is Raytheon. I'm looking at picking up some shares by buying outright or by selling a put. It's come down in price enough that it's almost yielding 4% again.
I like the buy. I hadn't noticed the LMT had pulled back down into the $80's. Hopefully it'll stay around where it's at until I can get some cash transferred to my brokerage account. I like the current yield and don't think that we're going to be seeing any major cuts to defense.
ReplyDeleteThanks PIP.
DeleteI think these defense contractors will stay depressed for a while. I like the yield and don't mind waiting. Thanks for commenting.
The defense stocks have been hit hard lately. I've looked at LMT but I don't like the high debt, even though it's manageable for them. The yield is very enticing, though. I've been focusing more on GD (which I already own) and RTN, leaning toward the latter.
ReplyDeleteHi DGM,
DeleteLMT is a little more risky. As you point out, they do have much higher debt levels. I don't see that as a concern long-term so I'm willing to take on more risk for a higher yield. Like you, I also like RTN at these levels and have sold a put just yesterday.
Thanks for stopping by!
I'd like to get in on the action too. I noticed the debt, but good management can work around that. I've heard of Raytheon before, but never did an analysis for it. If I have time this week, I'll do a post on them.
ReplyDeleteHi ADY,
DeleteIn this elevated market, the defense contractors haven't had the price appreciation that the rest of the market has enjoyed. I used this as an opportunity to average down.
I look forward to seeing your analysis on RTN. They look like a strong company and I sold a put yesterday.
Take care!
I agree with this buy. I've been eying LMT. My only concern is that as defense spending winds down over the next decade, defense stocks may slow their growth or stall out.
ReplyDeleteMy FIJ,
DeleteThere is always a risk of defense spending slowing down but it will never go away. These companies also take on commercial projects that don't depend on money strictly from the government. There is still a risk of slow or no growth and this is why these companies have attractive yields.
Thanks for the input!
Defense stocks still look really good one area thats doing really well today is defense and anything related to homeland security. The yield on Lockheed Martin is realy attractive.
ReplyDeleteDefense stocks are paying nice yields and look to be attractively valued here. There is uncertainty in defense budget cuts from the government though. I do agree that the yield on LMT is juicy.
DeleteThanks for commenting!