Peace Talks Knocked This Defense Giant Down a Quarter. Its Order Book Kept Growing.

Research Desk · October 1, 2026

An F-35A Lightning II in flight. U.S. Air Force photo, public domain, via Wikimedia Commons.

Wednesday was a rough session for the old reliables. The Dow slipped almost 0.9%.

Meanwhile the 10-year Treasury yield is still parked near 5.28%, close to its highest level in decades. That is a real problem for income investors.

Why accept a 2% or 3% dividend when a government bond pays more than 5% with no stock-market drama attached?

One of the stocks caught in that crossfire is Lockheed Martin (NYSE: LMT). It carries a second headwind, too. Every hopeful headline out of U.S.-Iran talks knocks a few dollars off its share price.

On September 22, a single report that Iran had offered to reopen the Strait of Hormuz sent the stock down about 3% in a morning. Shares now trade near $510, against a 52-week high of $692.

The market is pricing Lockheed like a war stock heading into peacetime. The company's own numbers tell a different story.

Why a Ceasefire Does Not Refill the Shelves

Most people know Lockheed for the F-35 fighter jet. The faster-growing business is less glamorous.

It is interceptor missiles: the PAC-3 and THAAD rounds that knock down incoming missiles before they land.

Think of a home standby generator and the fuel it burns. The jet or the launcher is the generator. You buy it once and keep it for decades.

The interceptors are the fuel. Every one fired in the Middle East and in Ukraine has to be replaced, and the shelves were thin before the shooting started.

A peace deal stops the firing. It does not restock the warehouse. That is why the Pentagon has moved from buying these missiles one year at a time to signing seven-year production contracts.

For a retiree, the closest comparison is a landlord. One-year leases leave you guessing every spring. A seven-year lease with a tenant who always pays lets you plan your income.

$230 Billion Booked, and the Biggest Order Came Later

Lockheed's second quarter, reported July 23, was its strongest in some time. Sales rose 11% to $20.1 billion, and earnings came in at $7.94 per share.

Free cash flow, the money left after paying the bills and reinvesting in the plants, reached $2.9 billion. A year earlier, that figure was negative.

New orders totaled $65 billion in the quarter, including a $35 billion multiyear contract for THAAD interceptors. That pushed the backlog to a record $230 billion, up from about $194 billion at the end of 2025.

Six days after those results, the Army expanded the PAC-3 program into a seven-year deal worth up to $58.6 billion. Because it landed after the quarter closed, it was not part of that $230 billion figure.

Lockheed says the contract lets it triple PAC-3 production capacity by the end of 2030. In Camden, Arkansas, where the missiles are finished, the workforce is set to grow from about 1,200 to roughly 1,850.

Management responded by raising its full-year outlook. It now expects 2026 sales of $79.75 to $81.75 billion, roughly 8% growth, and free cash flow of $7.0 to $7.2 billion.

The Dividend Math Against a 5.28% Treasury

Here is the honest comparison. Lockheed pays $3.45 per share each quarter, or $13.80 a year. At $510, that is a yield of about 2.7%.

A 10-year Treasury pays nearly double that today. On yield alone, the bond wins.

The difference is what happens next. Put $100,000 into a 10-year Treasury at 5.28% and you collect $5,280 a year until 2036. The check never grows.

Put the same $100,000 into Lockheed and the first year's dividends come to about $2,700. But Lockheed has raised its payout for 23 consecutive years, and over the past five years those raises averaged a little over 6% a year.

If that pace simply held, the annual check would be close to $5,000 by year ten, nearly matching the bond, before counting anything the shares themselves might do.

That is a projection, not a promise. But it shows why a growing dividend and a fixed coupon belong in different columns.

The payout also looks well covered. The dividend costs Lockheed roughly $3.2 billion a year, less than half the free cash flow management expects for 2026.

Timing is worth noting. Last year the board announced a 5% raise on October 9. If the pattern holds, the next decision is due within days, with third-quarter results expected around October 20.

The One Blemish

Not every part of the business is accelerating. The Space segment, which builds satellites and the Orion capsule, saw its profit outlook trimmed in July.

The cause was lower earnings from United Launch Alliance, Lockheed's rocket joint venture, while an investigation into a Vulcan launch anomaly continues.

There is also fine print on the PAC-3 deal. The $58.6 billion is a ceiling, delivery details are still being negotiated, and the full seven years depend on Congress funding the program year after year.

Neither issue breaks the thesis. Both are reasons to treat the backlog as very likely revenue rather than guaranteed revenue.

What You Pay, and the Bear Case

At about $510, Lockheed trades near 17 times the midpoint of its 2026 earnings guidance. That is a modest multiple for a company growing sales around 8% with a record order book.

Wall Street is split. Roughly half of analysts rate the stock a buy and half a hold, with an average price target near $630, about 23% above today's price.

The bear case is straightforward. If a final U.S.-Iran settlement drains the last of the war premium and defense budgets level off, investors may decide the stock deserves a lower price.

The 52-week low of about $437, set last December, is a reasonable marker for that scenario. It sits roughly 14% below where the shares trade now.

One more trait matters for this readership. The stock's beta is about 0.1, meaning its daily swings have had almost nothing to do with the broader market. On a day like Wednesday, that steadiness has value.

The Bottom Line

Lockheed Martin is being sold as if peace ends the story. Its order book says the restocking cycle is just getting started.

Investors get a 2.7% yield that has grown for 23 straight years, cash flow that covers it more than twice, and nearly three years of sales already booked.

It will not out-yield a Treasury today. For a retiree who wants income that can rise over time, backed by contracts measured in years, the recent selloff has made the entry price easier to accept.