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Dividends from Outer Space!
In the opening credits of the original Star Trek series, the voiceover starts with “Space, the final frontier…” Those words struck awe in millions, especially since the United States had, indeed, invaded on that final frontier by visiting the moon. Something that seemed incomprehensible and unreachable to many people when President John F. Kennedy put the goal into motion. But reach it we did. It was a shining moment in this country’s long history of successes.
I, for one, am still fascinated by space, though I also believe that the depths of the Earth’s oceans is another frontier we need to explore in greater detail. The U.S. government (through NASA) has been pushing for commercial development of vehicles that are capable of delivering people and cargo to space, and there are companies that are looking to create “airlines” for recreational space travel.
Some have convincingly argued that this shift is a sad statement about the United State’s space exploration convictions; others have convincingly argued that it is a legitimate push by the government to get a once government dominated field into the public sphere. Either way, dividend investors interested in space travel, or just interested in making money, should seriously consider companies related to space exploration as investments.
Why do I believe this? Because of the groundbreaking launch of a Space Exploration Technologies Corp spacecraft, which clearly demonstrates how tantalizingly close we are to commercial space travel. The unmanned SpaceX (the company’s nickname) capsule, code named Dragon, was set to launch on May 19th, but the launch was aborted literally seconds before takeoff because of excessive temperatures in one of the rocket’s engines.
This might have resulted in months of delay if the launch were in NASA’s hands. However, just two days later, the company successfully launched the Dragon on the second attempt. The next steps are to pair up with the International Space Station. Did I mention that Dragon is unmanned? Talk about science fiction coming to life!
Clearly, the hard work has yet to begin for SpaceX. So far, no lives have been at risk. When it seeks to dock with the International Space Station, however, real people (not a T.V. Spock or Kirk) could get hurt. If successful, the magnitude of what this privately held company has achieved would be enormous. If a docking isn’t possible, much will have been learned—all of which will help build to the day when we can remotely deliver payloads to the Space Station. Next up, will be people. After that… the final frontier.
(Perhaps that’s a bit too aggressive a timeline, but where would we be today without such space induced hits as Velcro, microwaves, and astronaut ice cream? You have to think big to if you want to make ice cream you can take in the sun!)
As noted above, SpaceX is a private company, but publicly traded Orbital Sciences (ORB) is a solid non-dividend paying option. In fact, it’s the largest direct play on the future of space. For those who have not heard of it, Orbital Sciences is based in Dulles, Virgina, not far from NASA headquarters in Washington D.C. It develops and manufactures small rockets and space systems for commercial, military, and civil government customers. Its primary products include satellites and launch vehicles, such as low-orbit, geosynchronous-orbit, and planetary spacecraft for communications, remote sensing, scientific and defense missions; ground- and air-launched rockets; and missile-defense systems that are used as interceptor and target vehicles. It also offers space-related technical services as well as develops and builds satellite-based transportation management systems. The company has about 3,500 employees, and officer and directors own 2.3% of the common stock. The company’s Internet site is www.orbital.com.
Dividend investors, however, won’t find much to like in Orbital Sciences. However there are a few large, dividend paying aerospace/defense companies that have operations in the space. Dow-30 component Boeing (BA – Free Boeing Stock Report) is one example.
The company is one of only a few major aerospace and defense companies around the world. Its products, from commercial aircraft like the iconic 747 to military jets like the similarly famous F-15, are, in many cases, household names and workhorses in the industries it serves. It wouldn’t be exaggerating the truth to say that Boeing’s reach extends worldwide—and then some.
Although not a huge part of Boeing’s business, the company’s Network & Space Systems Segment is “engaged in the research, development, production and modification of products and services to assist our customers in transforming their operations through network integration, information, intelligence and surveillance systems, communications, architectures and space exploration.” This is a mouthful and includes a host of items that aren’t directly related to exploring the great beyond, but the list ultimately includes products ranging from satellites to supporting the International Space Station. The segment produced about 15% of 2010 revenues.
Boeing is financially strong and has a long and successful history of rewarding dividend-focused investors. Clearly, there are risks, since the company has a small number of important customers (airlines and the U.S. government). However, if a dividend investor wants to reach space, this is a solid option.
Taking a slightly more aggressive approach, income-oriented investors might consider Lockheed Martin (LMT). Like Boeing, Lockheed provides a broad range of products and services to the world's governments and commercial customers, including space and missile systems, electronics, aeronautics, and information systems. Some of its high profile products include the iconic F-16 aircraft. It also makes the F-22 and F-35 aircrafts, ballistic and other missile systems, the C-130 military transport, and Titan launch vehicles.
The company only has one real customer, the United States Government. With military spending seemingly in the cross hairs, there are some real concerns about Lockheed Martin’s top line in the coming years. That said, based on recent pricing, the stock yields nearly 5%. Moreover, like Boeing, Lockheed is financially strong and has a long history of rewarding dividend investors. For those willing to take on a little more risk for a higher yield, Lockheed Martin is worth some additional research.
Although neither Boeing nor Lockheed offers a direct play on space travel, they do offer a diversified approach to gaining such exposure. It is also important to note the tendency for consolidation in the aerospace/defense industry, where large players like Lockheed and Boeing, swallow smaller players with interesting technology or expertise. This, of course, suggests that these two industry giants are likely to gain increasing scale if commercial space travel becomes a viable business. One could consider either to be less of a direct bet and more of a hedged bet—if the industry takes off, they will participate; if the industry languishes or fails, they have other revenue streams that should allow them to continue to reward dividend investors. For most, these may be better options than riskier so-called pure plays.
Dividend investors in search of the final frontier, or at least a way to “live long and prosper” from the push toward that frontier, have some interesting options. The shift from government to commercial space travel seems inevitable at this point; why not step aboard for the ride?
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.