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Artificial intelligence, national security, space.
These are all hot-button topics. They're also fields in which Leidos Holdings, Inc. ($LDOS) operates.
Leidos is a science and technology company that primarily provides its services to government clients.
Some of the company's products and services include software used to power hypersonic missiles, unmanned maritime surface vessels, cluster munitions, AI-enabled battle management platforms, cargo missions for NASA, and commercial docking systems for the International Space Station.
Leidos currently has a $48.4 billion backlog, with $9.6 billion worth of contracts funded and $38.8 billion in unfunded task orders.
The company has delivered strong long-term growth, with Leidos stock achieving a 10-year average annual total return of 14.93%. However, the firm has fallen out of favor recently, with shares declining 32% year to date.
At the moment, Leidos is trading at a price to earnings ratio of 9.91 while offering a 1.41% starting yield.
When it comes to dividends, the company's long-term growth is somewhat underwhelming, with a 5-year CAGR of 4.07%. However, the firm's most recent dividend increase, announced in November of last year, came in above average at 7.5%.
Additionally, Leidos has an extremely low payout ratio of 13.66%, meaning its dividend is well covered and has ample room for future growth.
This stock has sold off recently due to fears about slowing revenue growth, as well as Wall Street's ever-present concerns about government spending and the fragility of government contracts.
In 2025, Leidos generated 87% of its revenue from government contracts. Like most defense companies, this is the critical weakness, since many of these specialized projects and services have no other potential clients. Building missiles and spacecraft components isn't like bottling soda or manufacturing candy bars. There's an extremely short list of customers who can and will buy these products.
The flip side, however, is that advanced military technology underpins the U.S. dollar's global dominance. Funding these projects is paramount to maintaining U.S. hegemony.
Personally, I would be interested in buying Leidos. This is a profitable company operating in some of the market's hottest sectors, yet it's trading at a single-digit valuation while continuing to grow its dividend and maintain an ultra-low payout ratio.
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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.
