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UPS vs Lockheed Martin: Which is the Better Dividend Stock?

UPS and Lockheed Martin, both boasting higher dividend yields than the S&P 500's 1.3%, are analyzed for investment value. UPs appears cheaper long-term, while Lockheed is favorable short-term due to strong earnings coverage.

Date: 
AI Rating:   5

Earnings Per Share (EPS): The report notes that Lockheed Martin has an expected EPS of $27.22 for 2025, significantly higher than UPS' expected EPS of $7.87 for the same year. This indicates a stronger potential for Lockheed Martin to generate profit per share, leading to positive investor sentiment for that stock.

Free Cash Flow (FCF): Expected free cash flow for UPS in 2025 is estimated at $5.7 billion, while Lockheed Martin's is projected at $6.7 billion. A higher free cash flow often leads to a stronger capacity for a company to pay dividends or reinvest in growth initiatives. Lockheed Martin exhibits a healthier cash flow situation.

Profit Margins: The report mentions that UPS has a P/E ratio of 14.6, indicating relatively cheaper pricing compared to expected earnings, but its P/FCF ratio is notably higher at 17.1, pointing to a more expensive valuation based on free cash flow. In contrast, Lockheed Martin's P/E ratio is 16.2, with a P/FCF ratio of 15.4, suggesting more favorable pricing dynamics relative to its cash flow.

Dividend Sustainability: Lockheed Martin's dividend is well covered by its expected earnings, which means it can comfortably pay dividends without risking its financial health, giving it an EPS/DPS coverage ratio of 2.1 times. Conversely, UPS has an EPS/DPS coverage of just 1.2 times, indicating potential challenges in maintaining dividend payments if earnings come in lower than anticipated.

This information suggests that while UPS may have long-term growth potential, its short-term financial stability, particularly regarding dividend sustainability, may be at risk. Investors might see a more secure investment in Lockheed Martin, despite its lower long-term growth prospects compared to UPS.

Stocks:  UPS LMT