I last reviewed Lockheed Martin (LMT) in this January 29, 2025 post. In that post, I disclose the purchase of 50 shares @ $457.75 in one of the ‘Core’ accounts in the FFJ Portfolio on January 28. This purchase increased my exposure to 620 shares. With the automatic reinvestment of dividend income, my exposure is currently 632 shares.
At the time of my 2024 Year End Review, I held 570 shares and it was my 6th largest holding. When I recently completed my 2025 Year-End Investment Holdings Review, LMT had dropped to my 9th largest position. At the time of that review, LMT’s share price was $483.67. LMT’s share price, however, has subsequently experienced extreme volatility. On January 7, 2026, the closing share price was $496.87. On January 8, 2026, the closing share price was ~$518.44 with the day’s share price range being $513.01 – $542.87.
Despite this share price volatility, the underlying fundamentals of the business have not changed within 1 week.
Announcements on January 7 from The White House led to this share price volatility; other companies in the defense and aerospace sector also experienced share price volatility.
In the first announcement, Trump threatened to cap buybacks, block dividends and limit executive pay for underperforming contractors. This triggered selling by investors with a short-term mindset.
A second announcement made on the same day proposed a $1.5T defense budget for fiscal 2027 versus ~$1T communicated earlier. By making these announcements simultaneously, the share price volatility could have very likely been eliminated.
Which brings me to the importance of having a long-term mindset.
The repercussions of the first announcement is not be the ‘end of the world’ for a company such as LMT. The retention of funds historically allocated toward dividend distributions and share repurchases would likely strengthen the company’s balance sheet.
Strengthen The Balance Sheet
The following is a schedule of LMT’s debt at FYE2023 and FYE2024 (extracted from the FY2024 Form 10-K).
At the end of Q3 2025, the net long-term debt was $20.52B and the current portion of long-term debt was $1.669B for a total of $22.189B.
In FY2022 – FY2024 and the first 3 quarters of FY2025, LMT:
- disbursed $3.016B, $3.056B, $3.059B, and $2.332B in dividends; and
- repurchased $7.9B, $6B, $3.7B, and $2.25B of its issued and outstanding shares.
for a total of $31.313B.
In comparison, LMT’s TOTAL liabilities amounted to $54.095B at the end of Q3 2025.
Retiring some of the long-term debt may not be contractually possible nor advantageous (especially the notes bearing very attractive rates). Suppose that LMT, however, did not distribute a dividend. Retention of the entire $11.463B dividend distribution in FY2022 – FY2024 and the first 3 quarters of FY2025 could have lowered LMT’s net long-term debt well below ~$20B.
Perhaps LMT’s senior unsecured domestic currency debt ratings (see below) would now be superior thus lowering LMT’s borrowing costs.
- Moody’s: A2 (upgrade from A3 on August 14, 2023 with stable outlook)
- S&P Global: A- (assigned on May 2, 2019 with a stable outlook and affirmed on May 20, 2025)
- Fitch: A (upgrade from A- on June 3, 2024 with a stable outlook and affirmed on May 22, 2025)
The rating assigned by S&P Global is the lowest tier of the upper-medium investment grade level; the rating assigned by Moody’s and Fitch is one tier higher.
All 3 investment-grade ratings define LMT as having a STRONG capacity to meet its financial commitments. LMT is, however, somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
As an equity investor, however, I am exposed to a higher degree of risk. My risk is in the lower medium grade investment-grade group of ratings. Ratings in this group define an obligor as having adequate capacity to meet its financial commitments. Adverse economic conditions or changing circumstances, however, are more likely to lead to a weakened capacity to meet its financial commitments.
Final Thoughts
LMT derived ~75% of its $71B sales servicing contracts in FY2024 from the US military which has the largest annual budget of any country. It is also slated to operate the F-35, the largest defense procurement program ever awarded, through the 2060s.
LMT investors benefit from the company’s sheer scale of its tens of billions of dollars of contracts that provide defined decades long revenue and profit streams. In addition, the Pentagon is driven to modernize the US military’s ability to counter aggression from China, Russia, Iran and North Korea. If the defense budget for fiscal 2027 is increased from ~$1T to ~$1.5B, LMT should benefit.
With a long-term investing mindset, the share price behavior on January 7 should not have swayed our decision to invest in the company. My assessment suggests that limiting executive pay for underperforming contractors, capping buybacks, and blocking dividends are unlikely to have a material impact on the company’s long-term performance.
I am all for limiting executive compensation when a company is destroying shareholder value. Companies, however, have compensation structures approved the Board and shareholders (refer the Proxy material in LMT’s SEC Filings). How Trump intends to address executive compensation on a company by company basis is unclear. Perhaps he intends to influence the awarding of government contracts much in the same manner as he made decisions on The Apprentice. For those unfamiliar with The Apprentice, it was reality television franchise that simulated a high-stakes, season-long job interview. It became best known for its ‘boardroom’ showdowns and the iconic elimination catchphrase: ‘You’re fired!’
The way I look at it, the elimination of buybacks and dividend distributions over an indefinite period means LMT (and other industry participants) will need to adjust their capital allocation. The retention of funds historically returned annually to shareholders could fuel efficiencies thus potentially increasing profitability.
Some investors, however, fixate on dividend metrics. This type of investor may exit their position and potential investors may eliminate companies within the defense and aerospace sector as investments.
In several prior posts, I suggest investors look at an investment’s TOTAL potential long-term return. I occasionally reference Warren Buffett’s 1996 letter to Berkshire Hathaway shareholders in which he states:
If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes… Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.
Trump’s proposal regarding dividend distributions and share repurchases is less radical than shutting down the market for 10 years. His proposal, however, is much in the same vein…the stock market is not a casino. View a stock not as a ticker symbol to be traded, but rather as a partial ownership in a real business.
LMT will report its Q4 and FY2025 results and Q1 2026 and FY2026 outlook on January 29, 2026. I intend to revisit this existing holding at such time.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to finfreejourney@gmail.com.
Disclosure: I am long LMT.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation. I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
