Will Lockheed Martin or American Tower be the better dividend-paying stock to invest in for the next five years? 7investing CEO Simon Erickson compares the two companies in today's Summer Stockpicking Challenge matchup.
July 19, 2023
Welcome to our 7investing Growth vs Income Summer Stock Challenge! We are on a quest to find the best current stock opportunity for investors.
All month, we’re pairing popular “growth” and “income” stocks up in head-to-head matchups — to ultimately determine which stock will provide the greatest upcoming five-year return. We’ve included voting polls within this article: please help us determine which of these stocks represents the better current opportunity for investors!
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In this “Income Style, Round 1, Matchup 3” bracket, our #4 ranked defense contractor Lockheed Martin (NYSE: LMT) is paired up against #5-ranked tower operator American Tower (NYSE: AMT).
When looking over the next five years, which will prove to be the better investment?
American Tower $AMT deploys cell phone and data towers as well as internet infrastructure at scale across the globe.
Lockheed Martin Corp. $LMT powers aerospace and defense solutions and appears to always be in demand.
Who returns more for shareholders over the next years?
— 7investing (@7investing) July 19, 2023
Lockheed Martin is a global security and aerospace company who engages in “the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services.” More than two-thirds of its sales come from the U.S. government, with the defense budget funding fighter aircraft programs such as the F-16 Fighting Falcon, the F-35 Lightning, and the F-22 Raptor. Lockheed also has programs that are dedicated to ground-to-air missiles, warship radar, and orbital satellites.
Lockheed is one of only five “prime defense contractors” (along with Boeing, General Dynamics, Northrop Grumman, and Raytheon) who receive the majority of the Department of Defense’s contract obligations and can then sub-contract smaller programs to others. Its longstanding relationship with the DoD has created significant switching costs and significant barriers to entry of potential competitors. Lockheed has created a recurring and dependable revenue stream that generates a very healthy 7% cash flow margin.
It has also generously shared those cash flows with investors through dividends. Lockheed’s dividend payout has increased 45% during the past five years. With geopolitical tensions rising between the US, Russia, China, and Taiwan, it seems to be a reasonable assumption that Lockheed’s business and dividend will continue to grow for the foreseeable future.
American Tower is one of the world’s largest cellular tower operators. It competes in a capital-intensive oligopoly; where efficiency and cash flow allocation are of paramount importance.
As a Real Estate Investment Trust (REIT), AMT is required to distribute 90% of its pre-tax profits to shareholders as a dividend. After fulfilling its REIT dividend check obligation, it then dedicates its remaining adjusted funds from operations to make acquisitions, to build new towers internationally, or to repurchase shares.
On a consolidated basis, American Tower’s first quarter revenue grew 6.5% year-over-year and it captured a jaw-dropping 63.7% adjusted EBITDA margin. One of the company’s fastest-growing regions is Africa, where its partnerships with telecom providers like Airtel Africa helped boost billings by more than 12%. It has also set its sights on India, where it has been aggressively expanding ever since acquiring 20,000 new locations in 2017 from Vodafone Idea. Internationally, American Tower just reported its eleventh consecutive quarter of building at least 1,300 new tower sites.
Driven by the ongoing adoption of mobile devices, an international push for improved 5G coverage, and increased data usage due to more demanding apps, American Tower’s dividend has increased 95% during the past five years. American Tower is standing tall, as one of the safest ways for dividend-loving investors to participate in the world’s unquenchable thirst for more data.
Will Lockheed Martin or American Tower be the better investment for the upcoming five year period? Cast your vote in our live poll below!
American Tower $AMT deploys cell phone and data towers as well as internet infrastructure at scale across the globe.
Lockheed Martin Corp. $LMT powers aerospace and defense solutions and appears to always be in demand.
Who returns more for shareholders over the next years?
— 7investing (@7investing) July 19, 2023
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