Lockheed Martin commands the largest defense contract backlog in the aerospace industry, with approximately $160 billion in funded orders stretching across the next decade. The company produces the F-35 fighter jet, missile defense systems, and classified space assets that Pentagon planners consider essential to national security. For income investors, Lockheed Martin offers a 2.7 percent dividend yield backed by two decades of consecutive annual increases.
The setup for defense income investors
The Department of Defense budget for fiscal year 2026 sits at approximately $895 billion under the National Defense Authorization Act. That figure reflects sustained bipartisan commitment to military modernization amid elevated geopolitical tensions in Eastern Europe and the Indo-Pacific region.
Lockheed Martin generated $68.2 billion in revenue during fiscal 2025, up 4.2 percent from the prior year. Operating profit margins held steady near 12.5 percent. The F-35 Lightning II program alone accounts for roughly 25 percent of total company revenue, with more than 3,100 aircraft anticipated across the program’s lifetime.
Key numbers: backlog, yield, and production
| Metric | Value | Context |
|---|---|---|
| Total backlog | $160 billion | Funded orders across all programs |
| F-35 program revenue | $17 billion+ | Annual contribution |
| Annual dividend | $13.20 per share | Recently increased |
| Dividend yield | 2.7% | Above S&P 500 average |
| Free cash flow | $6.1 billion | FY2025 estimate |
| Payout ratio | 48% | Conservative coverage |
The record backlog provides visibility that few industrial companies can match. Contracts with the U.S. government typically span five to ten years, with cost-plus-fee structures that limit downside risk for the contractor. International demand adds diversification, with F-35 sales to NATO allies and Pacific partners expanding the addressable market.
What to watch for Lockheed Martin shareholders
Monitor the F-35 program’s technical maturity. The aircraft has faced criticism for sustainment costs exceeding $1.7 trillion over its projected 66-year lifecycle. Congressional pressure to reduce the cost per flight hour could compress margins if Lockheed Martin must absorb efficiency improvements.
The company’s classified space division, formerly known as Space Systems, is growing faster than the legacy aeronautics segment. Satellite constellations, missile warning systems, and hypersonic defense programs represent the next generation of revenue. Space now contributes roughly 20 percent of total sales.
Analysts at Wells Fargo maintain an overweight rating with a price target of $540. They cite the company’s dominant position in strategic deterrence programs and improving cash generation. Credit Suisse assigns a neutral rating with a fair value of $515, noting that defense budget growth may slow after fiscal 2027.
Peer comparison in aerospace and defense
| Company | Ticker | Yield | Backlog |
|---|---|---|---|
| Lockheed Martin | LMT | 2.7% | $160 billion |
| Northrop Grumman | NOC | 1.8% | $84 billion |
| General Dynamics | GD | 2.1% | $95 billion |
| Raytheon Technologies | RTX | 2.3% | $175 billion |
Lockheed Martin’s yield exceeds that of Northrop Grumman and General Dynamics, though it trails Raytheon Technologies on an absolute basis. The payout ratio of 48 percent provides substantial cushion against earnings volatility from program delays or cost overruns.
Common mistakes income investors make with defense stocks
Some investors treat defense stocks as pure geopolitical plays and ignore the dividend fundamentals. While rising tensions can boost short-term sentiment, long-term returns depend on program execution and cash flow generation. Lockheed Martin’s backlog is the more reliable signal than daily headlines.
Others fail to account for political cycle risk. Defense budgets can contract when priorities shift toward domestic spending. The current $895 billion authorization represents a peak that may prove difficult to sustain. A retiree allocating heavily to defense should balance the position with consumer staples and healthcare exposure.
Bottom line
Lockheed Martin offers income investors a rare combination of yield, dividend growth, and revenue visibility. The $160 billion backlog supports the payout for years to come. The 2.7 percent yield may not excite yield chasers, but the consistency and defensive characteristics matter more for conservative portfolios focused on capital preservation.
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