Image source: Lockheed Martin.
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One mark of success for a stock is when a company decides to split its shares, and for Lockheed Martin (NYSE: LMT), it's been a long time since the defense giant has rewarded shareholders in that particular way. Even though a stock split doesn't change the value of your position in a company, the move inspires confidence that a business sees continued strong industry conditions ahead. Lockheed's history of stock splits is fairly sparse, but some think the stock is overdue for a split in the near future. Let's take a look at Lockheed Martin's stock split history to see whether shareholders should anticipate another event in the near future.
Lockheed Martin's history of stock splits
The history of Lockheed Martin's stock splits since its debut in the late 1970s includes two splits:
Data source: Lockheed Martin investor relations.
As you can see, Lockheed hasn't made a habit of making many split announcements, even though its long-term return has been impressive. Over the past 35 years, the stock has generated an average annual total return in excess of 15%, and that would have supported more splits than the company has actually done.
There are two primary reasons why Lockheed hasn't done more stock splits. First, the defense giant has always delivered substantial dividend income to its shareholders, and dividends have represented a fairly large portion of the stock's overall total return to long-term investors. Today's yield of 2.5% doesn't seem all that impressive, but that largely stems from the fact that Lockheed's share price has appreciated more quickly than the dividend can keep up.
The other thing that has changed with Lockheed's stock split potential recently is that the impetus for companies to split their shares has largely disappeared in recent years. In 1983, the fact that Lockheed's share price exceeded $100 was reason enough to do a split. The same thing happened in the late 1990s, culminating in the 1998 split. Yet by the time Lockheed climbed back over the $100 mark in 2013, many companies were routinely choosing to leave their shares unsplit. Now, Lockheed shares fetch more than $250 apiece, yet the defense company seems to be in no hurry to announce a stock split anytime soon.
Lockheed's spinoff is like a mini-split
In addition, Lockheed's recent decision to divest itself of its information technology and services business should act as a small version of a stock split. Earlier this year, the company said that it would combine its IT businesses with that of Leidos Holdings, joining two separate businesses that will enjoy considerable synergy and produce larger scale and greater efficiency. The $5 billion transaction will include a $1.8 billion one-time cash payment to Lockheed, which the company said it will use for dividends, stock buybacks, or repayment of debt.
The unusual structure of the deal gives Lockheed investors the right to tender their shares in exchange for stock in Leidos. Currently, the exchange ratio contemplated in the deal is 8.2136 shares of Leidos for every share of Lockheed stock tendered. However, Lockheed will only accept about 3% of its outstanding shares as part of the tender, and the anticipated impact will be to reduce Lockheed's share count slightly. That might keep Lockheed's share price from falling as much as it otherwise would, but it nevertheless might satisfy those investors looking to profit from a corporate restructuring.
Given the current environment that has generally discouraged stock splits, investors in Lockheed Martin can't assume that the company's unprecedented heights in its share price will prompt the defense contractor to split its shares. Although the company's 16-year gap between its first and second stock splits could imply that Lockheed is overdue, few investors are betting on another split in the near future.
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