Buy this dividend stock as geopolitical tensions are getting hot

After a fragile ceasefire between Iran and Israel, global geopolitical tensions have eased somewhat. The global market sighed at ease, but some defence stocks naturally fell.

That being said, I think it is a structural story now, as global geopolitical tensions continue to look closely at Russia and China. Considering expectations, I think Lockheed Martin (LMT) is a good purchase. The stock is a play on trading at a reasonable valuation, with its dividend yield rising to almost 3% after the stock drawdown. Let’s explain in detail.

Global defence spending is expected to increase significantly over the next decade, with NATO members (excluding Spain) pledging to invest 5% of their respective GDP in defense over the next decade. The nine NATO members didn’t meet the 2% target set by the Alliance in 2014, but given the growing threat from Russia, there could be a sense of urgency.

While the collective 5% target may still be overlooked, we can reasonably believe that the alliance’s defense spending will be significantly higher than its previous ones over the next decade. It’s too early to say how much of the high spending is directed at US companies, but it’s still an opportunity for players like Lockheed Martin. US allies in the Middle East are also increasing their defense spending.

Elsewhere, India, one of the world’s leading arms importers, may increase its defence spending following recent clashes with rival Pakistan. Countries’ defence spending as a percentage of GDP is below 2%, and it may be necessary to increase spending in the face of threats from both China and Pakistan. Historically, the country has purchased most of its defense equipment from Russia (and its predecessor, the Soviet Union), but it has pivoted to Western suppliers. The country has yet to buy many defense equipment from the US, but President Donald Trump may push it to address the trade surplus.

Looking around the state, Lockheed Martin missed the US Air Force Next Generation Control (NGAD) program awarded to Boeing (BA), but the company is a strong candidate for the Golden Dome Missile Defense Program. The company has positioned its portfolio for a new era of war, and in February announced a system to counter unmanned aerial systems.