Lockheed Martin Corporation (LMT) is the world’s largest defense contractor. Founded in 1912, Lockheed Martin is now a $92 billion (by market cap) global defense monstrosity that employs over 100,000 people. The company reports results across four segments: Aeronautics, 40% of FY 2020 revenue; Rotary and Mission Systems, 25%; Space Systems, 18%; Missiles & Fire Control, 17%. As it sits, the company has already increased its dividend for 19 consecutive years. In fact, they just increased their dividend yet again in late September by nearly 8%. That’s not terribly far off from the five-year dividend growth rate of 9.8%. The stock also yields 3.4%. That yield, by the way, is 80 basis points higher than its own five-year average. It’s a very appealing combination of yield and growth. The payout ratio is a moderate 51.6%, easily covering the dividend.

I see the “sweet spot” for dividend growth stocks to be a yield of between 2.5% and 3.5%, paired with a high-single-digit (or better) dividend growth rate. This stock is in that spot in the sweetest possible way. Shares are trading hands for a P/E ratio of 15.1. That’s below the broader market by a good margin. - It’s also substantially lower than its own five-year average of 22.4. There’s also the matter of the P/CF ratio of 13.5 being well off of its own five-year average of 17.3. Morningstar rates LMT as a 4-star stock, with a fair value estimate of $402.00. CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line. They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold. CFRA rates LMT as a 5-star “STRONG BUY”, with a 12-month target price of $463.00. I came out slightly high. Averaging the three numbers out gives us a final valuation of $448.87, which would indicate the stock is possibly 38% undervalued.

Bottom line: Lockheed Martin Corporation (LMT) is a high-quality business across the board. They provide necessary products and services within the framework of a global oligopoly, all but guaranteeing plenty of future growth. With a 3%+ yield, high-single-digit dividend growth, nearly 20 consecutive years of dividend increases, a moderate payout ratio, and the potential that shares are 38% undervalued, this is one of my best long-term ideas for dividend growth investors.

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