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Lockheed Martin vs. United Technologies: Which Is the Better Dividend Bet?
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Loading...Amid the skittishness of the market, the prime focus of rattled investors is preventing further erosion of wealth.
Investors are looking for safe dividend plays that will ensure a regular income stream, even if stocks are bruised further.
But we think that the market presents an opportunity for lucrative total returns.
Sometimes, however, it is difficult to compare companies in the same sector.
For instance, choosing between aerospace and defense industry giants Lockheed Martin (LMT - Get Report) and United Technologies (UTX - Get Report) is no easy task when deciding which stock best serves long-term wealth-building needs.
Stock Price Performance
UTX data by YCharts
During the past three months, United Technologies has seen its stock drop by nearly 12%. Meanwhile, Lockheed Martin stock's has lost about 5.3%
The gap between the two widens when looking longer term at a year, with shares of United Technologies losing 29% in value and Lockheed Martin's stock actually registering gains of more than 6%.
Dividends and Valuations
At a nearly 3% yield, both stocks seem to be good income opportunities. But digging deeper shows that the fall in United Technologies' stock price is probably why its yield looks attractive.
A look at payout history shows that Lockheed Martin's 13 years of continuous dividend growth overshadows that of United Technologies, which has increased dividends for the past four years.
However, a look at the forward price/earnings to growth ratio of 1.46 shows that United Technologies seems to offer more value than Lockheed Martin's ratio of 2.15,most likely due to the stock's decline.
Earnings Performance
Lockheed Martin beat estimates for the fourth quarter with earnings of $3.01 a share, compared with the $2.94 a share expected by analysts. The company's fourth-quarter revenue was $12.92 billion, beating estimates by about 6.7%.
With the successful closure of the Sikorsky acquisition and completion of the strategic review of Lockheed Martin's IS&GS businesses to be merged with Leidos, which will unlock $5 billion in estimated enterprise value for Lockheed Martin's shareholders, the company can put these costs behind it.
Lockheed Martin's record backlog has enthused investors. The news that the U.S. Defense Department plans to buy 404 Lockheed Martin F-35 fighter jets over the next five years is also encouraging.
United Technologies, meanwhile, hasn't been as fortunate.
The company's fourth-quarter earnings per share beat Wall Street expectations by a penny, but revenue of $14.65 billion fell short by $700 million.
With just one of the company's four segments predicted to have operating income growth in 2016, the year seems like a forgettable one for United Technologies.
Although United Technologies' Pratt & Whitney unit will also likely benefit from an F-35 order, technical problems with Airbus' A320neo's engines have been distressing. Qatar Airways first flagged technical snags in Pratt & Whitney engines' performance and threatened to cancel orders.
United Technologies, however, looks better than Lockheed Martin when it comes to cash positions. Lockheed Martin has cash in hand of more than $1.1 billion, versus debt of more than $15.3 billion. United Technologies' $7.08 billion in cash, versus debt of $20.42 billion, puts it in a slightly better position.
Analyst Estimates
In terms of earnings-per-share growth, analysts are more bullish on Lockheed Martin.They estimate a 3.5% rise this year and a 7.8% gain in 2017 for United Technologies,while projections for Lockheed Martin stand at more than 9% this year and 16% for 2017.
However, when it comes to stock prices, United Technologies displays higher upside probability owing to its recent fall.
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