Lockheed Martin and other defense contractors are in a tough spot ahead of the Fiscal Cliff. On one hand, lots of companies are paying out dividends to get cash to shareholders before tax rates changes, on the other hand, the Fiscal Cliff also contains automatic cuts to defense spending which could leave those companies needing cash.
Don't add Lockheed Martin (LMT) to the list of companies looking to pay a dividend just yet. The company said Thursday that it would prefer to use excess cash to buy another company before it paying dividends. The company said it would be more likely to pay dividends than to repurchase shares, but that seems like a clear second choice behind M&A.
Lockheed CEO Marillyn Hewson also said Thursday that the company is closing in a deal with the Pentagon on a fifth batch of F-35 jets and has is making progress in talks for a sixth lot of jets. Lockheed said its contractors are already working on the fifth batch of jets under a preliminary contract as the sides work to finalize a deal.
Frank Kendall, defense undersecretary for acquisition, said at an investor conference hosted by Credit Suisse that despite the looming Fiscal Cliff and the likelihood that defense spending will be cut whether or not a deal is reached, there is still “a lot of money” that can be made in the defense business.
Kendall said a strategy that places increasing focus on the Asia-Pacific region as well as cybersecurity and space will lead to new growth opportunities for defense contractors. Players in the defense space, which include Boeing (BA), Northrop Grumman (NOC) General Dynamics (GD) and Raytheon (RTN) in addition to Lockheed Martin have been watching the ongoing budget negotiations closely as they all get a significant percentage of their revenue from the federal government.
Bobby Raines is the Managing Editor of the Market Intelligence Center. He has degrees in Mass Communications and History from Emory & Henry College. Bobby worked at a mid-sized daily newspaper before making a switch to covering the financial industry full time in the years leading up to the financial crisis. He has been a member of the Fresh Brewed Media team since 2011 and has served as a writer and analyst. You can write to him at firstname.lastname@example.org.