1 Magnificent Dividend Stock Down 25% to Buy and Hold Forever

Key Points

• Lockheed Martin's stock has declined due to concerns over its F-35 program.

• These concerns appear overstated.

• The stock offers a strong dividend and double-digit growth at a compelling valuation.

• 10 stocks we like better than Lockheed Martin ›

Don't underestimate the value a dividend can bring to your portfolio.

Some people think dividend-paying companies are boring. While they aren't always flashy, a dividend is a badge of honor that signals the business is doing so well that it earns more profits than it needs. As a result, the business shares a portion of those earnings with investors.

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The best companies can consistently increase their dividends, which generally requires continuous growth and success. Yes, that means they tend to make fantastic buy-and-hold stocks. That said, all stocks go through adversity at some point.

Famous defense and aerospace leader Lockheed Martin (NYSE: LMT) has tumbled 25% from its all-time high. Here's why investors may want to buy this dip and hold on to this magnificent dividend stock for the long haul.

Image source: Getty Images.

Why has Lockheed Martin declined so much while the broader market pushes to all-time highs?

It's generally an eyebrow-raiser when the stock of what many would consider an established company declines significantly while the broader market is doing well.

Lockheed Martin, in a way, is a publicly traded extension of the United States military-industrial complex. It's among the world's largest defense contractors, generating the vast majority of its revenue by selling various weapons and defense products used by the U.S. military and its allies on land, at sea, and in space.

The stock has lagged behind both the broader market and its defense industry peers in 2025. Investors appear concerned about Lockheed Martin's growth prospects after it lost its bid to build the sixth-generation Next Generation Air Dominance (NGAD) fighter jet to Boeing.

Lockheed Martin's fifth-generation fighter jet, the F-35, is its flagship weapon program, but it has been criticized over the years for its numerous delays and massive price tag. The Air Force anticipates Boeing's upcoming jet, dubbed the F-47, could be operational sometime between now and 2029.

Don't write Lockheed Martin off just yet

The selling pressure on Lockheed Martin may be an overreaction, at least for now.

Even though the Air Force anticipates the F-47 taking flight by 2029, that doesn't necessarily mean it will be production-ready. If the F-35's numerous delays and cost overruns prove anything, it's how complex and challenging these machines are to perfect. A lot could change over the next several years, and the F-35 is still critically important in the meantime.

Additionally, Lockheed Martin plans to upgrade its F-35 to achieve much of the functionality of a next-generation jet, but at a much lower cost. That could appeal to Washington, D.C. and help preserve a weapon program that the U.S. government has already invested a significant amount of time and money in.

Lastly, Lockheed Martin has a diverse portfolio, including satellites and missile systems, that should remain critical to the U.S. and its interests moving forward. The company is also working on a highly classified aeronautics program, which management described as game-changing for the military, and emphasized the importance of successfully fielding it, despite charges that weighed on Lockheed Martin's recent earnings.

What Lockheed Martin offers the buy-and-hold investor

Lockheed Martin is still a total package with a lot to offer long-term investors.

For starters, it has a generous dividend that strikes a balance between growth and income. The stock yields nearly 2.9% at its current share price, and management has raised the dividend for 22 consecutive years, and by an average of 8.8% annually over the past decade.

The worries surrounding Lockheed Martin have driven the stock down to just 20 times its trailing 12-month free cash flow, the lowest among its peer defense stocks, and just 14 times the company's guided 2025 cash flow. From an earnings standpoint, analysts still believe Lockheed Martin will achieve 10% to 11% annualized earnings growth over the next three to five years.

I'd say Lockheed Martin's stock reflects a lot of negative sentiment at this point, which could mean larger investment returns if things break well for the company over time. Barring any dramatic valuation swings, the stock could deliver 12% to 14% annualized total returns if it simply meets Wall Street's expectations.

That seems worthy of a leap of faith for one of the most important companies to America's national security.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.