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The defense industry holds a number of appealing stocks for dividend growth investors. Constant geopolitical concerns and rising defense budgets around the world provide a strong backdrop for the biggest defense companies.

The major defense companies have sustainable dividends, even during recessions, due to the persistent need for global defense. In turn, investors have generated strong returns from defense stocks, as well as steady dividend growth each year.

This article will discuss 3 top defense stocks for dividend growth investors.

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.

RTX Corporation (RTX)

RTX was formed after the merger of two previously independent industrial giants, Raytheon and United Technologies. The combined company then spun off Carrier (CARR) and Otis (OTIS) which now trade on their own. Raytheon Technologies is one the largest aerospace and defense companies in the world with $64 billion in 2021 sales.

The company has four segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense.

On July 25th, 2023, RTX reported Q2 results for the period ending June 30th, 2023. For the quarter, revenue increased 12.3% to $18.3 billion, which was $620 million more than expected. Adjusted earnings-per-share of $1.29 compared favorably to $1.16 in the prior year and was $0.11 above estimates better than expected. Organic sales were higher by 13% for the quarter.

Raytheon Technologies’ backlog at the end of the quarter was a record $185 billion, compared to $180 billion in the first quarter of 2023, of which $112 billion was from commercial aerospace and $73 billion was from defense. The company’s book-to-bill ratio was 1.17 for the period.

RTX updated its guidance for 2023, with the company now expecting sales of $73 billion to $74 billion, up from $72.0 billion to $73.0 billion.

The company has now raised its dividend for 29 years, making it an attractive income stock for dividend growth investors. RTX stock yields 3.2%.

General Dynamics (GD)

General Dynamics is an aerospace and defense company that operates in four business segments: Aerospace, Combat Systems, Marine Systems, and Technologies. Based on revenue, General Dynamics is the fourth-largest defense company.

General Dynamics is an entrenched military prime contractor. It has ground and marine platforms that serve as the backbone for the U.S. Army, U.S. Navy, and militaries around the world. These platforms have decades-long life cycles and General Dynamics has the expertise to maintain and modernize them. These characteristics comprise a significant competitive advantage and result in resilience to recessions.

General Dynamics reported second-quarter results in which revenue increased 10.5% and earnings per share decreased 1.8% on lower margins. Aerospace revenue grew 4.6% on higher deliveries. Gulfstream demand has accelerated with a book-to-bill ratio of 1.3X.

General Dynamics is a Dividend Aristocrat, with over 30 consecutive years of dividend growth. The company has grown its dividend by 10% per year on average over the last decade and by 9% per year over the last five years.

Moreover, the stock is currently offering a 2.3% dividend yield. Given its healthy payout ratio, its rock-solid balance sheet and its reliable growth trajectory, General Dynamics can easily continue raising its dividend meaningfully for many more years.

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