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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 of the top defense stocks for dividend growth investors.

Lockheed Martin (LMT)

Lockheed Martin Corporation is the world’s largest defense company. About 60% of the company’s revenues comes from the US Department of Defense, with other US government agencies (10%) and international clients (30%) making up the remainder.

The company consists of four business segments: Aeronautics (~40% sales) - which produces military aircraft like the F-35, F-22, F-16 and C-130; Rotary and Mission Systems (~26% sales) - which houses combat ships, naval electronics, and helicopters; Missiles and Fire Control (~16% sales) - which creates missile defense systems; and Space Systems (~17% sales) - which produces satellites.

Lockheed Martin reported excellent results for Q2 2024 on July 23rd, 2024. Net sales increased to $18,122M from $16,693M and diluted GAAP earnings per share climbed to $6.85 from $6.63 on a year-over-year basis on higher sales and margins. On an adjusted basis, diluted EPS rose to $7.11 from $6.73 per share.

Aeronautics net sales increased 6% to $7,277M from $6,875M in the prior year due to more F-35, classified, F-16, and development and sustainment volumes. Missiles and Fire Control sales increased 13% to $3,102M from $2,755M in comparable periods due to higher tactical & strike missile volumes. Rotary and Mission Systems net sales climbed 17%.

LMT has increased its dividend for 22 years.

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.

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

On July 25th, 2024, Raytheon Technologies announced second quarter results for the period ending June 30th, 2024. For the quarter, revenue grew 7.5% to $19.8 billion, which beat estimates by $520 million. Adjusted earnings-per-share of $1.41 compared to $1.29 in the prior year and was $0.11 better than expected. The prior quarters had seen significant impairments from the manufacturing defect in some jet engines produced by the Pratt & Whitney segment. That is largely behind the company now. Organic sales grew 10% for the period. For the quarter, organic revenue was higher by 19%, 10%, and 4% for the Pratt & Whitney, Collins Aerospace, and Raytheon segments, respectively. Raytheon Technologies’ backlog at the end of the quarter was a new record $206 billion.

Moving forward, we anticipate solid growth to continue, forecasting 7% growth over the intermediate term. This takes into account the strong history of the underlying operating businesses.

The company has now raised its dividend for 30 years.

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 mixed Q2 2024 results on July 24th, 2024. Companywide revenue rose 18% to $11,976M from $10,152M and diluted earnings per share increased 20.7% to $3.26 from $2.70 on a year-over-year basis.

Aerospace revenue rose 50.5% to $2,940M from $1,952M in the prior year. The total backlog is $20,037M, declining after seven quarters of increases. Gulfstream’s book-to-bill ratio was 0.9X. The first G700 deliveries occurred. Revenue for Marine Systems increased 12.9% to $3,453M from $3,059M on the strength of the Columbia and Virginia-class submarine programs.

General Dynamics is an entrenched military prime contractor. It has ground and marine platforms that serve as the backbone for the US Army, US Navy, and militaries around the world. This leads to a competitive advantage as these platforms have decades long life cycles and General Dynamics has expertise and experience to perform sustainment and modernization.

GD has increased its dividend for 33 years.

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