3 Top Defense Stocks For Rising Dividends

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The war in the Ukraine has resulted in elevated geopolitical risk for the markets. During such tumultuous periods, risk-averse investors look for stocks that are resilient to volatility.

Defense stocks have usually outperformed the broad market during difficult periods. And, many defense companies pay solid dividend yields with the ability to raise dividends each year. In this article, we will discuss the prospects of three resilient defense stocks, which offer reliable dividends.

L3Harris Technologies (LHX)

L3Harris Technologies is the result of a merger between L3 Technologies and Harris Corporation completed on June 29, 2019, forming the sixth largest defense contractor. The company now reports three business segments: Integrated Mission Systems (~42% of revenue), Communication Systems (~23% of revenue), and Space and Airborne Systems (~35% of revenue). 

L3Harris reported Q1 2023 results on July 26th, 2023. Companywide revenue rose 12% from strength in all three segments and the Tactical Data Links (TDL) acquisition. Diluted non-GAAP EPS decreased (-8%) to $2.97 from $3.23 on year-over-year basis on higher pension and interest costs. Integrated Mission Systems segment revenue climbed 8% due to higher revenue in Commercial Aviation, classified Maritime, and ISR. 

Revenue for Space & Airborne Systems increased 9%. Growth came from Space, Intel & Cyber, Mission Avionics, and Mission Networks but offset by declines in legacy platforms. Communications systems revenue increased 30% due to higher volumes in Broadband Communications, Tactical Communications, Public Safety, and legacy platforms. The funded book-to-bill ratio is 1.18X. The company won $5.6B in awards and total backlog is about $25B. 

The conflict in Ukraine should provide some tailwinds offset by supply chain disruptions and high labor costs. Bottom line growth will be driven by organic sales increases, higher margins, and robust share buybacks. Despite the slowdown, we are currently forecasting average annual earnings per share growth of 8% out to 2028.

LHX has a secure dividend payout and a 2.6% current yield.

Lockheed Martin (LMT)

Lockheed Martin is the largest defense company in the world. It generates approximately 60% of its revenues from the U.S. Department of Defense, another 10% from other U.S. government agencies and the remainder from international clients. Its aeronautics segment, which generates about 40% of total sales, produces well-known military aircraft, such as the F-35, F-22, F-16 and C-130.

Lockheed Martin is an established military prime contractor. It has developed the expertise to modernize its platforms which have a useful lifetime of decades. 

In the 2023 third quarter, LMT’s revenue of $16.88 billion beat estimates by $160 million. Revenue increased 2% year-over-year. Adjusted earnings-per-share of $6.77 beat by $0.15. Aeronautics sales decreased 5% due to lower net sales for the F-35 program. This was offset by growth in other segments, including 4% growth in Missiles & Fire Control, and 9% growth in Rotary & Mission Systems.

Lockheed Martin’s earnings per share has been increasing on the strength of the F-35, tactical and strike missiles, satellite and missile defense programs, the Sikorsky acquisition, and lower share count. The F-35 is one of the most advanced stealth military aircraft in the world and will likely drive growth for the long-term. The Pentagon plans to buy 2,456 F-35s and this number does not include sales to allies. It will become the largest defense program in history.

The company also increased its shareholder cash returns. On October 6, 2023, the company increased its share repurchase authorization by $6 billion, and the company recently increased its quarterly dividend by 5% to $3.15 per share.

Lockheed Martin has raised its dividend for 22 consecutive years making it is an appealing income stock. It has grown its dividend by nearly 10% per year on average over the last decade. Moreover, Lockheed Martin is currently offering a 3% dividend yield.

Northrop Grumman (NOC)

Northrop Grumman Corporation is one of the five largest US aerospace and defense contractors based on revenue. The company reports four business segments: Aeronautics Systems (aircraft and UAVs), Mission Systems (radars, sensors and systems for surveillance and targeting), Defense Systems (sustainment and modernization, directed energy, tactical weapons), and Space Systems (missile defense, space systems, hypersonics and space launchers). 

Northrop Grumman makes the B-2 Spirit, E-2D, E-8C, RQ-4 Global Hawk, MQ-4C Triton, and MQ-8B/C Fire Scout. The company also provides content on the F-35 and F/A-18. It won the contract for the B-21 Raider. The company had revenue of over $36 billion in 2022. 

The company has performed well in 2023. In the second quarter, company-wide revenue increased 9% year-over-year. Revenue for Aeronautics Systems rose 2% due to higher volumes in Manned Aircraft and Autonomous Systems offset by declines in E-2, F/A-18, and JSTARS. Revenue for Defense Systems rose 10% due to higher sales in ammunition programs, the IBCS, HACM, and NATO AGS ISS. 

Northrop Grumman’s earnings have increased substantially over time driven by top line growth from contract wins, modernization and upgrades, services, and acquisitions. A significant reduction in the share count has helped drive earnings per share gains as well. Looking forward, the company will achieve both revenue and EPS growth through its involvement in the F-35, B-2, E2-2D, B-21, and space platforms. 

Northrop Grumman has paid a growing dividend for 20 years. The payout ratio is currently low at approximately 33% so there is room for further increases. NOC stock yields 1.5%.


On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.