Should You Care That Lockheed Martin’s Buyback Effect Is Fading?

Lockheed Martin (LMT) has spent the past three years handing its owners a slightly bigger slice of the company each year, and the arithmetic worked. Earnings per share grew faster than net income. The stock now sits well below its 52-week high, which makes the question worth asking again: is that quiet compounding still running at the speed the record suggests?

Lockheed Grew Earnings Per Share More Than Twice As Fast As Profit

Over the last three years net income has grown 2.5% a year on average. Earnings per share grew 6.0% a year on average over the same three years. The gap comes from the share count, down about 3.1% a year over those three years, so each surviving share claims a bigger piece of the profit.

Own the stock and do nothing, and your claim on the F-35 production line and the PAC-3 missile business creeps up every year, with the dividend paid alongside. That is the appeal of a compounder. It is also the part of the story that has changed.

Lockheed Returns More Through Dividends Than Buybacks

Over the latest twelve months the company spent about $1.8 billion buying back stock and paid about $3.2 billion in dividends, a total shareholder yield of 3.7% of market value after stock-based compensation. The dividend half of that is the steady half. The buyback half is the half that compounds, and its effect shrank: the share count came down 1.4% over the past year against that 3.1% three-year average.

Cash is not the constraint. Free cash flow covers the buyback and dividend bill about 1.8 times over, and operating cash flow runs about 1.7 times reported net income, on a trailing twelve month operating margin of 11.9%. The competing claim on that cash arrives over the next few years: management has committed a total of between $8 billion and $9 billion of capital to scaling munitions production.

That commitment is not speculative. The order book reached a record $230 billion, including the multiyear contract for THAAD interceptors, and that backlog is close to three years of work at the second quarter of 2026 sales pace of $20.1 billion. Building the plants to convert an order book that size may well beat retiring a share. Both come out of the same cash.

Should You Buy Lockheed Stock On This Pullback?

The stock is up 20.5% over the past twelve months and down 19.0% over the past six months, and it trades about 20% below its 52-week high. Over three years it has returned 28% in price, about 8.7% a year, against the +76% the S&P 500 (SPY) returned over the same three years. At its three-year peak it was up 61%, so some of that has already gone back.

At 19.5 times trailing earnings none of this is priced as a giveaway, and net debt of about 1.6 times EBITDA is a moderate load. The pullback improves your entry without making the compounding any faster, and at last year’s 1.4% the shrinking share count is doing less work than the three-year record implies. What carries the next three years is the backlog turning into profit. Our screen of pulled-back stocks is where to weigh this dip against the others on offer.

You Are Still Holding One Defense Contractor

An order book that long buys patience, but it still leaves your money riding on how one company executes. The Trefis High Quality Portfolio is built for the part of your savings that should not depend on that. That portfolio has a track record of outpacing the three major indices.