3 Best Dividend-Paying Defense Stocks

There are plenty of reasons for investors to take a position in defense stocks. U.S. defense contractors tend to be safe and reliable investments. Most major defense contractors benefit from lucrative government contracts, innovative technologies, strong intellectual property rights, robust sales and growing profits. In addition, there are a number of attractive defensive stocks with reliable dividends.

Defense stocks tend to pay generous dividends to their shareholders, with most exceeding the average dividend yield of 1.66% found among companies listed on the benchmark S&P 500 index. Further, while many publicly traded companies scaled back or suspended their dividend payments during the Covid-19 pandemic, a number of defense firms raised their payouts.

This makes defense stocks attractive to any type of investor, but especially to retirees or others who rely on dividends as part of their income stream.

Here are three of the best dividend stocks in the defense sector.

LMT Lockheed Martin $447.97
NOC Northrop Grumman $438.16
RTX Raytheon Technologies $92.82

Lockheed Martin (LMT)

Source: ranchorunner / Shutterstock.com

We’ll start the list of top defense stocks for income investors with Lockheed Martin (NYSE:LMT), the world’s biggest defense contractor with annual revenue of nearly $66 billion.

The company is a leading supplier to the U.S. Defense Department and makes cutting-edge technology. It continues to win multibillion-dollar contracts from the U.S. government, with the most recent being a $7.8 billion agreement related to next-generation F-35 fighter jets.

Lockheed Martin is also pushing into new areas, notably space. It recently announced plans to reorganize its space work into three separate business units: commercial civil space, national security space, and strategic and missile defense systems.

LMT stock is essentially flat over the past 12 months but has gained more than 40% in the past five years. Furthermore, the company pays a generous quarterly dividend of $3 per share for an above-average yield of 2.68%. And Lockheed has a history of steadily raising its dividend, increasing its payout in each of the past 20 years.

Northrop Grumman (NOC)

United States Air Force Northrop Grumman (NOC) RQ-4B Global Hawk unmanned surveillance aircraft.

Source: viper-zero / Shutterstock.com

Northrop Grumman (NYSE:NOC) is another defense contractor that pays a steady and reliable dividend to stockholders. The company paid out over 70% of its free cash flow in dividends last year. Most recently, it increased its quarterly dividend by 8% to $1.87 per share. This gives it a yield of 1.71%.

As for NOC stock, it has slumped 7% over the past year. While it has gained 33% in the past five years, the S&P 500 is up 54% during that time. Despite shares’ recent lackluster performance, many analysts claim to like the stock and its valuation right now. Their average price target of $505.53 is 15% above where shares currently trade.

The company beat the consensus expectation for its first-quarter results, reporting earnings per share of $5.50 on revenue of $9.3 billion versus the $5.09 on $9.2 billion analysts were expecting. Dragging on the stock have been declines in profits at some of Northrop Grumman’s key business units, notably mission systems and aeronautics systems. Offsetting this, however, is its space unit, which saw Q1 sales increase 17% from a year ago. Revenue from the space segment now outpaces aeronautics by 33%.

Overall, the company and its dividend remain strong.

Raytheon Technologies (RTX)

A German army mobile Raytheon (RTX) MIM-104 Patriot surface-to-air missile (SAM) system on display during the Laage airbase open house.

Source: VanderWolf Images / Shutterstock.com

Raytheon Technologies (NYSE:RTX) is another defense contractor that recently raised its quarterly dividend, boosting its payout by 7% to 59 cents per share. Shares now yield 2.53%, which is about 50% greater than the average dividend offered by companies listed on the S&P 500.

The dividend increase was announced alongside strong first-quarter results that included a 10% year-over-year increase in sales to $17.21 billion, surpassing the consensus analyst estimate for $16.96 billion. And Raytheon announced earnings per share (EPS) of $1.22, well ahead of the $1.13 analysts expected.

In addition to being a defense company, Raytheon is also a leading aerospace firm that manufactures aircraft parts for sale around the world. The aerospace segment helps to round out the company’s business. For example, Q1 sales were lifted by growing demand for commercial aircraft parts and services in China.

As for the performance of RTX stock, it is down 4% over the past 12 months and has gained 17% over the past five years. However, those looking for the top defense stocks for income investors should be comforted by the fact that the company has raised its dividend by 24% since 2020.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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