Beat the Dow Jones with dividend stocks that pour out cash

that much Dow Jones Industrial AverageThe Dow is an index composed of 30 famous companies on the American stock exchange. It is widely treated and regarded as a gauge of the health of the broader U.S. stock market.

Want to beat the Dow? Defense and aerospace companies lockheed martin (LMT 2.22%) We’ve made it look easy for years.

What’s the secret? Cash-flushing dividends are an important factor in Lockheed Martin’s success. Will this continue?

According to the evidence:

Investment in U.S. Defense

Lockheed Martin designs and builds weapons systems for land, sea, air, space and cyber applications. Notable products include Apache and Black Hawk helicopters, F-35 Lightning II jets, and Javelin mobile missile systems.

You can’t invest directly in the U.S. military, but Lockheed Martin is a great alternative. The company gets more than 70% of its revenue from the U.S. government. Most of that comes from the Department of Defense.

As America’s defense spending grows, so does Lockheed Martin.

U.S. government defense spending using forecast data from YCharts

Government spending may sometimes retreat, but defending the United States and its interests has always been costly, and spending has increased over time.

Arm your portfolio with huge dividends

Dividends are sometimes grossly underestimated, so check how impactful they have been. Lockheed Martin beat Dow only on price. However, dividends have contributed more to stock returns than stock price increases.

LMT Total Return Data from YCharts

Lockheed Martin is still a great dividend stock today. The company has raised its dividend for 21 consecutive years. Over the past five years, dividends have grown by an average of 8% per year. Add in the stock’s current dividend yield of 2.7%, and it’s a solid long-term combination.

Lockheed Martin’s dividend payout ratio is currently just 52%, giving management room to issue a raise in the future. Management uses excess cash flow to repurchase stock to bolster earnings growth.

Is there more to come?

Lockheed Martin is well positioned for growth for many years to come. The company’s F-35 aircraft program has grown to more than a quarter of Lockheed Martin’s total sales and still has plenty of life left in it. The Department of Defense has approximately 450 F-35 fighter jets in its fleet and plans to procure about 2,500 over the next several decades.

The F-35 has been scrutinized for delays and cost overruns, but current geopolitical tensions have increased interest in the program from some U.S. allies, including Germany and Canada.

These aircraft are quite expensive, but Lockheed’s real money will come from years of maintenance and service revenue. In total, the estimated value of the program is approximately $1.7 trillion. Analysts have increased their long-term growth estimates for Lockheed Martin, starting in early 2023.

LMT EPS LT Growth Estimates Data: YCharts

Meanwhile, the stock trades for a forward P/E ratio of 17, a palatable valuation for a company that is growing earnings at a 9% clip and paying a nearly 3% dividend yield. Patient investors willing to allow Lockheed Martin to compound its profits and pour in dividends have a solid chance of continuing its dominance in the Dow Jones for years to come.