Smart Dividend Portfolio Edition #77: Income Armor
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Dear Investor,
Welcome to the 77th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: Sep 08, 2025
Stocks closed the week mixed, with the Dow Jones Industrial Average (DJIA) down 0.32%, losing ground due to macroeconomic concerns. Meanwhile, the strong performance of tech megacaps lifted the S&P 500 (SPX) and the Nasdaq-100 (NDX) to 0.33% and 1.01% weekly gains, with the large-tech benchmark especially lifted by a surge in Broadcom (AVGO) and Alphabet (GOOGL) .
After a shaky start to the holiday-shortened week on Tuesday and a new all-time high on Thursday, stocks closed Friday on a weak note after the August jobs report confirmed that the labor market is visibly slowing down.
The economy added just 22,000 jobs last month – less than a third of what was expected – and the unemployment rate rose from 4.2% to 4.3%. This added to July’s below-trend growth and a stark revision for June that moved job growth into negative territory, marking three months of slowing job growth and reflecting a weakening U.S. job market. The Federal Reserve apparently saw it coming, as outlined in Powell’s Jackson Hole speech. However, the data confirming that economic weakness now demands a rate reduction despite still elevated inflation did little to cheer the markets up.
A September rate cut was already fully priced in before the jobs report release, so the weak data did not help sentiment – instead, it raised worries that the economy may be weaker than seen on the surface. Other signs of economic weakness – such as the sixth straight month of manufacturing contraction and the Fed’s Beige Book report pointing to below-average GDP growth ahead – added fuel to the fire, sparking speculation about a potential “jumbo cut” of 50 bps. With a rate cut impending anyway, reasons for the Fed move came to the forefront – and with those being negative (weak economy) rather than positive (lower inflation), stocks wobbled on fears for an earnings hit.
The Federal Reserve has two mandates – maximum employment and stable prices. After a not-so-surprising revelation about the first, investors are about to receive a wide set of data on the second mandate’s trends, with both consumer price index (CPI) and producer price index (PPI) inflation figures coming out this week. This incoming inflation data will be closely scrutinized for signs of stubborn price pressures or easing trends, which could determine whether policymakers proceed with a modest rate cut or opt for more aggressive easing to support the economy.
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This Week’s Quality Dividend Stock Idea
Lockheed Martin Corp. (LMT) is a global leader in aerospace and defense, delivering advanced technologies and integrated solutions that support national security and global stability. With a broad portfolio that ranges from advanced aircraft and missile defense to space technologies and integrated defense solutions, the company serves governments and commercial partners worldwide. Leveraging decades of innovation and a strong global presence, Lockheed Martin emphasizes technological leadership, mission readiness, and long-term value creation to reinforce its position as a trusted partner in defense and security.
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Defense Origins
Lockheed Martin’s origins trace back to the early 20th century, with the founding of the Lockheed Aircraft Company in 1912 and Martin Marietta in 1917. Both companies played pivotal roles in advancing aviation and aerospace technologies, particularly during World War II and the Cold War, supplying aircraft, spacecraft, and defense systems that became integral to U.S. national security.
A defining milestone came in 1995, when Lockheed Corporation and Martin Marietta merged to form Lockheed Martin, creating the world’s largest defense contractor at the time. The merger consolidated expertise in aeronautics, space, and defense electronics, positioning the company for long-term growth. The following year, Lockheed Martin acquired Loral’s defense electronics and space businesses, strengthening its leadership in satellites, missile defense, and combat aircraft.
During the 2000s, Lockheed Martin’s earnings trajectory was propelled by major defense contracts, most notably the F-35 Lightning II program, which evolved into one of the largest defense projects worldwide and remains a major source of revenue today. Complementary programs in missile defense systems and classified space initiatives further reinforced growth. The company also divested non-core assets in materials and energy to sharpen its focus on aerospace and defense.
Over the past decade, Lockheed Martin has reshaped its portfolio through strategic acquisitions and divestitures aimed at expanding in high-growth areas such as helicopters, propulsion, and space systems. In 2015, the $9 billion acquisition of Sikorsky Aircraft added a new dimension in rotary systems with iconic helicopters like the Black Hawk and Marine One. The following year, the sale of its Information Systems & Global Solutions business to Leidos for $5 billion underscored a disciplined exit from IT services in favor of core defense operations.
The strategy continued with the 2020 acquisition of Aerojet Rocketdyne for $4.4 billion, enhancing capabilities in propulsion, hypersonics, and munitions. In 2024, Lockheed Martin acquired Terran Orbital, a specialist in small satellites and in-orbit services, reinforcing its long-term commitment to space innovation. Since 2010, the company has completed around 30 acquisitions and seven divestitures, consolidating its leadership in aerospace, defense, and space technologies.
Today, Lockheed Martin, with a market capitalization of nearly $108 billion and trailing twelve-month revenues of nearly $72 billion, is listed at #59 on the 2025 Fortune 500 list.
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Defense Pillars
Lockheed Martin operates through four main segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS), and Space. Aeronautics, which generates about 40% of revenue, produces combat and air mobility aircraft, including the F-35. MFC contributes roughly 19% of sales with air and missile defense systems such as the HIMARS and PAC-3. RMS accounts for 22%, offering helicopters, surface ships, radars, and integrated defense systems, while Space, at 18%, provides national security spacecraft, missile defense solutions, and hypersonic missions.
The company also develops advanced cybersecurity, AI, and autonomous defense systems. Its 21st Century Security Strategy integrates legacy platforms with next-generation technologies like AI, 5G, and distributed cloud. At the center is OneLMX, a digital modernization program launched in 2022 that streamlines engineering, manufacturing, and supply chains to improve speed, interoperability, and production agility. Headquartered near Washington, D.C., Lockheed earns over 95% of revenue from defense, supported by an innovation-driven workforce where about half are engineers and scientists.
The company’s second-quarter FY25 results highlighted both resilience and challenges. Lockheed’s diversified sourcing, long-term planning, and cost-type contracts help offset tariff and supply chain pressures, while fixed-price contracts often include adjustment clauses. The company is also boosting allied and domestic sourcing of key inputs like titanium and semiconductors to strengthen supply chain resilience.
By segment, Aeronautics sales rose 2% to $7.4 billion on steady F-35 deliveries, though profitability was hit by a one-time charge tied to an aeronautics classified program. Excluding this, operating profit would have grown in the high single digits. MFC delivered the strongest growth, with sales up 11% to $3.4 billion and profits rising 6% on higher volumes of JASSM, LRASM, and HIMARS.1 RMS revenue fell 12% to $4 billion, reflecting a $305 million charge and weaker helicopter deliveries, while Space grew 4% on Orion, NGI, and Fleet Ballistic Missile programs, with segment profit up 5%.
The quarter’s largest impact came from a classified Aeronautics contract program, a fixed-price advanced aircraft contract, which continued to face design, integration, and testing setbacks through 2024 and into 2025, driving delays and higher costs. After a full review with internal and external experts, the company reset the program’s cost and schedule baseline, recording a $950 million pretax reach-forward loss in Q2 FY25 to cover expected future overruns. Management is now exploring a contract restructuring with the Pentagon to share risks while maintaining that the program is strategically vital for national security, warranting continued investment despite near-term losses.
The F-35 remains a central growth driver, with 50 deliveries in the quarter and 97 year-to-date, keeping Lockheed on track for 170–190 in 2025. International demand remains strong, with new orders from the U.K., Belgium, and Denmark. The aircraft’s combat record and role as the only fifth-generation fighter available to U.S. allies underscore its long-term relevance, while lessons from its research are expected to extend its capabilities at lower cost.
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1 – Joint Air-to-Surface Standoff Missile; Long-Range Anti-Ship Missile; High Mobility Artillery Rocket System
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Strategic Tailwinds
Beyond aircraft, Lockheed secured a $9.8 billion U.S. Army contract to supply Patriot missile interceptors, strengthening visibility in missile defense. Meanwhile, reports that the U.S. Government is considering taking equity stakes in major defense contractors, including Lockheed, highlight growing government focus on defense industrial capacity. For investors, such measures could reduce funding risks on complex programs and reinforce Lockheed’s role as a critical defense partner.
The company is also disputing a $4.6 billion tax liability asserted by the IRS over revenue recognition methods tied to ASC 606 implementation and the 2017 tax law. Although the IRS initially approved the company’s approach, it later reversed its position, claiming the methods understated taxes by shifting revenue timing. Lockheed strongly rejects the claim and has appealed to the IRS Independent Office of Appeals, with the option to pursue judicial review if needed. To cover potential interest costs, the company recorded a $100 million reserve, while emphasizing that the liability itself remains contested.
Looking forward, budget priorities support continued growth. The U.S. Army has requested a quadrupling of PAC-3 missile production, while the President’s FY26 budget earmarks nearly $400 million for Air-Launched Rapid Response Weapon (ARRW) hypersonics, following its successful flight test of the Conventional Prompt Strike missile. In addition, the U.S. Navy has committed to a five-year procurement of more than 85 CH-53K helicopters beginning in 2029. These programs add to Lockheed’s multiyear visibility across key domains.
Lockheed is also expected to become a major player in the emerging U.S. homeland missile defense program known as “Golden Dome.” The proposed layered system is expected to integrate ground-based interceptors (PAC-3, THAAD, NGI),2 space-based sensors, and advanced command and control (C2) networks that merge real-time data across domains. Lockheed’s involvement in PAC-3, THAAD, and NGI2 programs places it in a central position strongly to support such multi-domain architectures.
Lockheed is focused on architecture and command-and-control prototypes, drawing on its experience with missile defense networks. Work at its “Lighthouse” hub uses real-world simulations to test scalable integration of sensors, interceptors, and decision tools. While contracts are not yet secured, the company’s technology base provides a strong competitive base as the program advances.
With one-off charges set to fade, Lockheed expects margins to expand in the second half of 2025 as production scales across fighter jets, missile interceptors, and helicopters, supported by operational efficiencies and tighter cost controls.
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2 – PAC-3: Patriot Advanced Capability-3, an advanced air and missile defense interceptor; THAAD: Terminal High Altitude Area Defense; NGI: Next Generation Interceptor.
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Defense Momentum
Lockheed Martin’s financial trajectory over the past five years reflects a mix of stability in revenue and volatility in earnings. While the company’s revenues have grown at a CAGR of 2.7% over the past five years, earnings have declined by 4.8% over the same period. Sales have held steady to slightly higher, supported by consistent F-35 production and sustainment activity alongside steady backlog conversion. However, earnings per share have been more uneven, pressured by program losses and cost overruns.
Lockheed Martin’s second quarter of FY25 underscored this contrast between resilient demand and execution challenges. Sales held flat year-over-year at $18.2 billion, as growth in F-35 deliveries, missile programs, and space initiatives was offset by heavy charges in Aeronautics and Rotary and Mission Systems, leaving results below Wall Street expectations. Excluding these one-offs, sales would have risen in the mid-single digits, pointing to healthy underlying demand.
Profitability, however, was hit hard by $1.6 billion in charges. This included the pretax loss on the classified aircraft program. Sikorsky’s business also recorded a a $570 million charge on Canada’s Maritime Helicopter Program as revised fleet requirements and expanded mission capabilities drove higher costs, while the Turkish Utility Helicopter Program faced sanctions-related disruptions, leading to a $95 million charge.
Lockheed also recorded a $66 million impairment tied to the Next Generation Air Dominance (NGAD) fighter program after the contract went to Boeing, along with a $103 million tax provision following an IRS adjustment. Together, these items cut operating profit to $748 million and pushed GAAP EPS down to $1.46, with charges reducing earnings by $5.83 per share.
The balance sheet remains a mix of strengths and risks. Debt stood at $21.6 billion against $5.3 billion of equity, leaving leverage higher than most peers, yet Lockheed continues to hold investment-grade ratings of “A-” from S&P Global and “A” from Fitch, both with stable outlooks.
Even with these setbacks, the order backlog expanded to around $167 billion, reflecting demand for F-35 contracts, missile defense systems, and classified space programs. Backlog visibility provides resilience, with nearly two-fifths expected to convert into revenue within a year and two-thirds within 24 months. While sales are projected to hold steady or grow, margins are likely to stay pressured until loss-making programs are brought under control. Management reaffirmed FY25 sales guidance at $74.3 billion but trimmed EPS expectations to $21.85, both at midpoint and operating profit to $6.65 billion, implying margins near 9%.
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Dividend Power
Lockheed Martin has built a reputation for prioritizing shareholder returns, combining steady dividends with opportunistic share repurchases. Supported by consistent cash generation, the company has raised its dividend annually for over two decades, underscoring the resilience of defense demand and disciplined financial management. Over the past ten years, dividends have grown at an annual rate of 8.4%, and the dividend yield of 2.85% stands more than double the industrials sector average. With a payout ratio near 74% and a business model anchored in long-term government contracts, the dividend is viewed as both stable and sustainable.
In the first half of 2025, Lockheed returned nearly $3 billion to shareholders, including $1.6 billion in dividends and $1.3 billion in buybacks. The quarterly dividend currently sits at $3.30 per share, signaling management’s ongoing commitment to growing payouts, while the company still retains $8.1 billion in authorized repurchases.
These returns are underpinned by cash flow, though operating cash flow declined to $1.6 billion in the first half due to higher contract assets on the F-35, elevated helicopter inventory, and lower liabilities on classified programs. Free cash flow dropped to $805 million, but management expects improvement in the second half of the year as backlog conversion and working capital efficiencies take hold. FY25 free cash flow is projected at $6.6–6.8 billion, with management noting that 2026 will see a modest step down tied to heavier investments and program spending.
Profitability metrics remain strong despite near-term headwinds. Lockheed ranks in the top 3% of the aerospace and defense industry on return on equity (ROE) and in the top 20% on return on assets (ROA) and invested capital (ROIC).
However, the stock has fallen nearly 20% over the past year, reflecting investor caution around program losses and earnings volatility. Even so, shares remain well above their 52-week low, supported by dividend strength and confidence in long-term defense spending.
Valuation offers additional support: Lockheed trades at more than a 20% and at a modest discount to sector medians on trailing and forward price-to-earnings multiples, respectively. Compared to its peers like RTX and L3Harris Technologies, LMT trades in the low valuation range on the basis of trailing and forward P/E ratios, EV/EBITDA and price-to-cash flow. Based on a Discounted Cash flow (DCF) analysis, LMT stock is trading at around 19% below its estimated fair value.
Wall Street’s outlook remains constructive. Analysts see average upside of about 3.5%, with some projecting gains approaching 30%. While execution challenges in aviation and helicopter programs continue to weigh on results, the company’s robust backlog, resilient defense budgets, and steady shareholder returns provide a foundation for long-term growth. For many investors, the dividend remains the central draw, while prospects for stronger free cash flow and cost discipline are viewed as key drivers of recovery ahead.
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Investing Takeaway
Lockheed Martin’s dividend story remains one of its strongest attractions for investors. The company has built a long track record of raising payouts year after year, a reflection of both steady defense demand and disciplined financial management. Backed by long-term government contracts and a sizable backlog, the dividend offers reliability even during periods of earnings volatility or program setbacks. While buybacks have played a supporting role, the dividend has consistently been the centerpiece of shareholder returns, providing stability when the stock faces market pressure. For income-focused investors, Lockheed’s payout stands out within the industrials sector, offering both current yield and the potential for future growth. With defense budgets resilient and cash generation expected to recover as execution challenges ease, the dividend remains a dependable anchor, reinforcing Lockheed Martin’s appeal as a long-term holding.
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Dividend Investor Portfolio
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Portfolio News
▣ Amgen (AMGN) launched construction for a $600 million state-of-the-art Center for Science and Innovation at its Thousand Oaks headquarters, designed to bring researchers, scientists, and engineers together under one roof. The facility will feature advanced automation and digital technologies designed to accelerate next-generation therapeutic development. Construction is slated to start in Q3 2025, with the project expected to create hundreds of U.S. jobs. This investment builds on Amgen’s commitment to U.S.-based R&D and capital expenditures, bolstered by favorable tax policies such as the Tax Cuts and Jobs Act of 2017 and the One Big Beautiful Bill Act of 2025.
▣ Citi Wealth announced a major partnership with BlackRock (BLK) to launch Citi Portfolio Solutions powered by BlackRock, a new investment offering designed to expand portfolio options for clients. Under the agreement, BlackRock will manage about $80 billion in assets currently overseen by Citi Investment Management, serving thousands of Citi Wealth clients. Several members of Citi’s investment team will transition to BlackRock, continuing to manage existing strategies for Citi clients. Beyond the transfer of assets, the two firms plan to collaborate on developing new products and solutions, leveraging Citi’s advisory expertise and BlackRock’s global scale, technology, and investment capabilities.
▣ Kroger (KR) is expected to announce its second-quarter results on September 11, with consensus projecting $0.99 in EPS on approximately $34.1 billion in revenue. The company has raised its annual identical-sales outlook to 2.25–3.25%, citing strong grocery demand and expanded e-commerce and private-label offerings.
▣ Activist investor Elliott Investment Management has amassed a roughly $4 billion stake in PepsiCo (PEP) – one of the largest in the company’s history – and urged sweeping strategic changes. Elliott has proposed that PepsiCo refranchise its North American bottling network, mirroring Coca-Cola’s successful 2017 model, and streamline its product lineup by divesting underperforming food and beverage brands. The activist group argues these moves could boost margins and unlock significant shareholder value, estimating up to 50% upside if executed successfully. The company responded by expressing an open dialogue with shareholders and reaffirming its existing strategy focused on innovation, portfolio transformation, and global growth.
▣ VICI Properties (VICI) announced a regular quarterly cash dividend of $0.45 per share, translating to an annualized dividend of $1.80 per share, reflecting a 4% increase over the current rate. The dividend will be distributed on October 9 to shareholders of record at the close of business on September 18.
▣ Verizon (VZ) raised its quarterly cash dividend by $0.012 to $0.69 per share, translating to an annualized dividend of $2.76 per share. The dividend will be payable on November 3 to shareholders of record at the close of business on October 10.
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Recent Trades
We have decided to sell LyondellBasell as the company faces mounting structural challenges that weigh on its long-term outlook. The company is struggling with persistent oversupply in polyethylene and polypropylene markets, eroding pricing power, and limiting margin recovery potential. Free cash flow is expected to remain under pressure, raising concerns about the sustainability of its dividend . These structural headwinds were underscored in its most recent quarter, when earnings fell well short of expectations – Q2 adjusted EPS of $0.62 lagged the consensus – driven by weaker volumes, higher energy costs, and regulatory burdens in Europe. The Olefins & Polyolefins–Americas segment in particular saw earnings nearly halve year-over-year, highlighting ongoing market weakness. With shares already down sharply year-to-date and payout ratios stretched, the stock’s risk-reward profile remains unfavorable. Given these dynamics, LYB appears more of a value trap than an opportunity, making it a clear Sell.
We have decided to add Lockheed Martin to the Dividend Portfolio as the company stands out as a compelling addition for dividend-focused investors due to its combination of industry leadership, robust cash flow potential, and resilient long-term demand. The company’s dominant position across advanced aircraft, missile defense, and space programs ensures visibility into multi-year government contracts, providing a foundation for sustainable payouts. Strategic investments in modernization, digital operations, and next-generation defense technologies position Lockheed to manage costs more efficiently and protect margins, even amid program challenges. Its disciplined capital allocation prioritizes shareholder returns, with the dividend supported by a sizable order backlog. For investors seeking both income and stability, Lockheed offers a defensive profile within aerospace and defense, combining high-quality cash generation with a reliable and growing dividend, making it a strong “buy” for portfolios focused on long-term yield and capital preservation.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.92% | +5.97% | $5,822.54 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Sep 12, 2025 | Oct 01, 2025 | 2.46% | $6.16 |
| Amgen (AMGN) | Nov 18, 2025 | Dec 09, 2025 | 3.27% | $9.52 |
| BlackRock (BLK) | Dec 04, 2025 | Dec 23, 2025 | 2.61% | $20.84 |
| Bank of Nova Scotia (BNS) | Oct 02, 2025 | Oct 29, 2025 | 5.98% | $3.2 |
| EOG Resources (EOG) | Oct 17, 2025 | Oct 31, 2025 | 3.06% | $4.08 |
| ExxonMobil (XOM) | Nov 17, 2025 | Dec 10, 2025 | 3.64% | $3.96 |
| IBM (IBM) | Nov 12, 2025 | Dec 10, 2025 | 3.14% | $6.72 |
| JPMorgan Chase (JPM) | Oct 07, 2025 | Oct 31, 2025 | 3.43% | $6.00 |
| Kroger (KR) | Nov 17, 2025 | Dec 01, 2025 | 3.08% | $1.40 |
| Lockheed Martin (LMT) | Dec 02, 2025 | Dec 29, 2025 | 2.85% | $13.20 |
| PepsiCo (PEP) | Dec 09, 2025 | Jan 06, 2026 | 3.8% | $5.69 |
| Philip Morris (PM) | Sep 25, 2025 | Oct 09, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Dec 08, 2025 | Dec 22, 2025 | 2.36% | $3.56 |
| VICI Properties (VICI) | Sep 18, 2025 | Oct 06, 2025 | 5.22% | $1.73 |
| Verizon (VZ) | Oct 09, 2025 | Nov 04, 2025 | 6.09% | $2.71 |
NameEX-Dividend DatePayment DateYield on Cost Annual DPS
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
