3/11/25
L3Harris Technologies (LHX) is a major player in the aerospace and defense industry, known for providing advanced communication, surveillance, and electronic warfare solutions. Formed through the merger of L3 Technologies and Harris Corporation in 2019, the company has built a strong foundation in military technology, making it a go-to name for government contracts.
For investors looking for stability, LHX presents an interesting case. The company operates in a sector that is less affected by economic downturns due to consistent government defense spending. This makes it a particularly attractive option for those who prioritize steady income from dividends. But is the stock a solid pick for long-term dividend investors? Let’s take a closer look.
Key Dividend Metrics
📈 Dividend Yield: 2.20% (Forward)
💰 Annual Dividend Payout: $4.80 per share
📆 Ex-Dividend Date: March 10, 2025
🔄 5-Year Average Yield: 1.98%
📊 Payout Ratio: 58.96%
🚀 Dividend Growth Streak: 5+ years
Dividend Overview
L3Harris has built a reputation as a reliable dividend payer, with a current forward yield of 2.20%. This is slightly higher than its five-year average of 1.98%, giving investors a bit of extra income compared to past levels. While the yield isn’t among the highest in the market, it’s backed by a steady stream of government contracts that provide predictable revenue.
The company is on track to pay out $4.80 per share annually, slightly up from the trailing dividend of $4.64. Investors who hold the stock before the upcoming ex-dividend date of March 10, 2025, will be eligible for the next payout on March 21, 2025.
Consistency is key when it comes to dividends, and LHX has delivered. While some industries see wild fluctuations in earnings, the defense sector tends to be more resilient, making this stock an attractive option for investors looking for stability.
Dividend Growth and Safety
LHX has steadily increased its dividend over the past several years, though it hasn’t yet earned the title of Dividend Aristocrat. Growth has been solid, with increases in the mid-to-high single digits over the last five years.
One important factor for income investors is the payout ratio, which currently sits at 58.96%. This suggests the company is paying out a little more than half of its earnings in dividends, leaving room for reinvestment in operations and future growth. A ratio in this range is generally seen as sustainable, meaning there’s no immediate risk of the dividend being cut.
Another encouraging sign is the company’s cash flow. With $2.56 billion in operating cash flow and $2.78 billion in free cash flow, LHX has more than enough to cover its dividends while still funding operations and expansion. This is a critical factor in determining whether a company’s dividend is secure over the long term.
Chart Analysis
Price Trend and Moving Averages
The price action of L3Harris Technologies (LHX) over the past year shows a clear uptrend that peaked before entering a steady decline. The stock saw a strong run-up, breaking well above both its 50-day and 200-day moving averages, but momentum eventually shifted, leading to a breakdown below both key levels.
Currently, the 50-day moving average (orange line) is sloping downward and has crossed below the 200-day moving average (blue line), forming a death cross pattern. This is typically seen as a bearish signal, indicating that short-term momentum is weaker than long-term trends. However, the price has recently rebounded from its lows, attempting to reclaim lost ground.
The stock is currently trading just below the 50-day moving average, which is acting as resistance. If it manages to break above and hold this level, it could signal a potential recovery. However, failure to break through might suggest continued downside pressure.
Volume and Market Participation
Volume has been relatively stable, with occasional spikes corresponding to major price moves. A significant volume increase occurred during the July peak, indicating strong investor interest at the time. More recently, the volume has picked up slightly as the stock bounced from its recent lows, suggesting renewed buying activity.
A closer look at the volume bars shows a mix of green and red, meaning buying and selling pressure have been battling it out. Ideally, sustained higher volume on up days would confirm a shift in momentum. If volume remains low, the recent rally may lack conviction.
Relative Strength Index (RSI) and Momentum
The RSI is currently sitting around 47, which is near the midpoint of its range. This suggests that the stock is neither overbought nor oversold, leaving room for movement in either direction. Previously, RSI had dipped into oversold territory when the stock hit its recent lows, which may have prompted the latest bounce.
For a stronger bullish case, RSI would need to move above 50 and sustain higher levels, indicating increasing buying pressure. If it starts trending downward again, it could signal that sellers are still in control.
Recent Candlestick Action
The last five candlesticks show a mix of buying and selling pressure. The most recent candles have relatively small bodies with longer lower wicks, suggesting that buyers are stepping in at lower levels. However, the upper wicks indicate resistance, meaning sellers are active as well.
If the stock can close above its recent highs with strong volume, it could confirm a short-term reversal. On the other hand, another rejection near resistance may lead to a retest of the recent lows.
Analyst Ratings
L3Harris Technologies (LHX) has recently experienced a mix of analyst upgrades and downgrades, reflecting varied perspectives on the company’s prospects.
Upgrades:
📈 Bernstein: On January 8, 2025, Bernstein upgraded L3Harris from “Market Perform” to “Outperform,” adjusting the price target to $267. This upgrade was influenced by the company’s strong position in the defense sector and anticipated benefits from increased government defense spending.
📈 Citigroup: On February 10, 2025, Citigroup maintained a “Strong Buy” rating on L3Harris, with a slight adjustment in the price target from $291 to $285. The firm acknowledged L3Harris’s strong market presence and potential for growth in defense contracts.
Downgrades:
📉 Raymond James: On January 2, 2025, Raymond James downgraded L3Harris from “Outperform” to “Market Perform.” The decision was driven by concerns over future contract bookings and recent performance trends, suggesting a need for caution regarding the company’s near-term prospects.
📉 UBS: On January 31, 2025, UBS maintained a “Hold” rating on L3Harris, adjusting the price target from $228 to $237. The firm expressed a neutral stance, indicating that while L3Harris has potential, certain market factors warrant a more cautious approach.
Consensus Price Target:
🔍 The consensus among analysts sets the 12-month average price target for L3Harris at approximately $260.80, indicating a potential upside from current trading levels. This target reflects a balanced view, considering both the company’s strengths and the challenges it may face in the evolving defense landscape.
Earning Report Summary
L3Harris Technologies just wrapped up its fourth-quarter and full-year 2024 earnings report, and the numbers show a company that’s holding strong in the defense sector. Despite economic uncertainties, L3Harris continued to grow, with steady revenue gains and solid cash flow.
Fourth-Quarter 2024 Highlights
The company pulled in $5.5 billion in revenue for the quarter, a 3% increase from last year. This kind of steady growth suggests demand for its defense solutions remains strong. Earnings per share (EPS) came in at $2.37, but on an adjusted basis, it was a higher $3.47, beating analyst expectations. The operating margin, which shows how efficiently the company is running, was 10.3%, but when adjusted for one-time costs, it improved to 15.3%, reflecting solid cost control.
Full-Year 2024 Performance
For the full year, revenue climbed to $21.3 billion, marking a 10% increase from the previous year. That’s a notable jump, and a good chunk of it came from organic growth and strategic acquisitions. New orders reached $24.2 billion, putting the book-to-bill ratio at 1.14x, meaning the company is bringing in more orders than it’s fulfilling—always a good sign for future growth. The backlog is now sitting at $34 billion, ensuring steady revenue in the years ahead.
Cash Flow and Cost Savings
Cash flow remains a strong point for L3Harris. The company generated $2.6 billion in cash from operations, and after capital expenses, free cash flow stood at $2.3 billion. This level of cash flow means L3Harris can keep funding its dividend, buybacks, and investments without issue.
On the cost-cutting front, the company’s LHX NeXt initiative has been a success. In 2024 alone, it shaved $800 million in costs, surpassing expectations. Originally aiming for $1.2 billion in total savings by 2026, the company now believes it will hit that target a year early, by the end of 2025.
Overall, L3Harris continues to demonstrate resilience and efficiency, navigating market challenges while maintaining a strong financial foundation.
Financial Health and Stability
One of the reasons L3Harris remains a compelling investment is its position in the defense sector, which benefits from steady government contracts. While other industries may experience downturns, national defense spending remains a priority, providing a level of stability that many other companies don’t have.
Looking at the company’s financials, revenue over the last twelve months came in at $21.33 billion, with a net income of $1.5 billion. Margins are strong, with an operating margin of 21.75%, which indicates solid profitability. Return on equity sits at 7.87%, showing that the company is effectively using shareholder funds to generate profit.
One area to keep an eye on is the company’s debt. LHX has a total debt of $12.98 billion and a debt-to-equity ratio of 66.3%. While this is on the higher side, the company’s consistent cash flow helps offset some concerns. The current ratio of 1.08 shows that it can meet short-term obligations, but it isn’t flush with excess liquidity. This means investors should watch for any changes in interest rates or refinancing costs, as they could impact future profitability.
Valuation and Stock Performance
L3Harris is currently trading at $213.32, a drop of 2.08% on the day. The stock has seen some volatility over the past year, with a 52-week range between $193.09 and $265.74. Right now, shares are trading closer to their lows than their highs, which could present an opportunity for investors looking to buy at a discount.
From a valuation perspective, the stock has a trailing price-to-earnings (P/E) ratio of 27.68, which suggests it’s priced at a premium based on past earnings. However, the forward P/E of 20.20 looks more reasonable, indicating that analysts expect earnings to improve.
The PEG ratio, which measures a stock’s price relative to its earnings growth, is at 0.32. This is particularly interesting because a lower PEG ratio suggests that the stock is undervalued compared to its growth potential. Compared to many other stocks in the aerospace and defense sector, LHX appears attractively priced for those looking at long-term growth potential.
Despite its strengths, LHX has underperformed the broader market over the past year. The stock has gained just 1.99% in the last 52 weeks, while the S&P 500 has climbed 8.49%. That underperformance might discourage some investors, but it could also mean the stock is trading at an attractive entry point.
Risks and Considerations
While L3Harris has a lot going for it, there are a few potential risks that investors should keep in mind.
One of the biggest concerns is the company’s debt load. With a debt-to-equity ratio of over 66%, LHX carries a significant amount of leverage. While this hasn’t been a major issue so far, rising interest rates could increase borrowing costs and eat into profits over time.
Another risk is the company’s reliance on government contracts. While defense spending is generally stable, any unexpected budget cuts could impact revenue. Government contracts also come with regulatory risks, which could affect profitability if policies change.
Stock performance has also been underwhelming, with LHX struggling to keep up with the broader market. While this could be an opportunity for long-term investors, those looking for short-term gains may find better options elsewhere.
Lastly, dividend growth may slow in the future. While the current payout ratio is reasonable, it is nearing a point where future increases could become more modest unless earnings growth picks up.
Final Thoughts
L3Harris Technologies is a solid choice for investors who prioritize stability and steady income. The combination of a 2.20% yield, consistent dividend growth, and strong government contracts makes it a reliable option for long-term portfolios.
That said, there are some risks to consider, particularly when it comes to debt and stock performance. While LHX is not a high-yield dividend stock, it offers a balance of income and potential for future appreciation. Investors comfortable with its debt levels and patient with its stock performance may find L3Harris a valuable addition to a dividend-focused portfolio.
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