Why Is Everyone Ignoring Lockheed Martin Stock’s High Cash Yield

Lockheed Martin (LMT) generated free cash flow equal to 6.9% of its market value over the last twelve months, compared with 4.4% for the median S&P 500 company. That cash belongs to shareholders whether the company pays it out or not. A yield this high marks either a business on sale or one the market expects to shrink. So why do buyers pay so little for Lockheed's cash?

Lockheed Martin's Cash Has Swung Widely In Two Years

The price appears to assume that Lockheed cannot maintain this level of cash generation. The company's own financial record offers a reason for that view. Free cash flow over twelve months fell from $6.95 billion in the period ending June 2024 to $3.33 billion in the period ending June 2025, then rose to $8.73 billion in the period ending June 2026.

That low point included the second quarter of 2025, when Lockheed booked unfavorable profit adjustments. The company posted a 4.1% operating margin in that quarter, compared with 12.4% in the second quarter of 2026.

Beneath those swings, the business is growing, which makes Lockheed look more like a business on sale than one that is shrinking. The company builds F-35 fighter jets, missiles and space systems for customers such as the U.S. Army. Revenue reached $77.0 billion over the last twelve months, up 7.2% from a year earlier. Furthermore, the company spends relatively little to sustain its operations: capital spending was 16.1% of its cash from operations.

In July, management raised its 2026 free cash flow guidance to a range of $7.0 billion to $7.2 billion, up from $6.65 billion. That target sits slightly above the $6.91 billion Lockheed produced in 2025. It remains below the $8.73 billion generated over the last twelve months, which is the exact figure driving the 6.9% yield.

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More Of Lockheed Martin's Cash Is Going Into Missiles

The other doubt involves where the cash is going. Management has committed $8 billion to $9 billion of capital to scale up munitions production, a plan executives called unchanged during their July 23, 2026 call.

So far, Lockheed has secured the orders behind that spending. Backlog reached a record $230 billion in the second quarter of 2026, including a $35 billion Missile Defense Agency contract for interceptors. However, management also expects some margin dilution, projecting a decline of 20 to 30 basis points over the next few years on its own adjusted measure.

The Space segment faces its own setback. Management lowered its 2026 profit outlook for the division to a range of $1.34 billion to $1.38 billion, citing reduced equity earnings from ULA, a business Lockheed partly owns, during the investigation of a Vulcan launch anomaly. That lowered range is a forecast, not a reported result.

What Lockheed Martin Owes Against Its Cash

Lockheed also owes money against its cash. Net of cash, debt stood at $16.7 billion at the end of June 2026, representing 13.3% of its market value at the latest close. When factoring in those liabilities, free cash flow comes to 6.1% of the company's enterprise value, a metric combining market value and net debt. Operating income measured 8.2 times interest expense over the last twelve months, so Lockheed earns its interest several times over.

That debt comes first if cash generation swings down again as it did in 2025, or if missile spending grows faster than the orders behind it. For now, management's raised guidance points to cash slightly above 2025's level, though below the last twelve months. The missile buildout currently has orders behind it, though management notes it will cost some margin. Lockheed's cash record remains the less settled part, and free cash flow for the September quarter is the number to watch when the company reports on or around October 22, 2026.

Is Too Much Of Your Wealth Riding On One Stock?

Lockheed Martin holders are counting on its cash flow to hold up. When one position grows into a large part of your wealth, a sharp fall can hurt your whole plan, and selling to spread the money out can bring a large tax bill. Our partner advisory firm offers a free strategy review of ways to protect a concentrated position and unwind it with less tax.

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