The stock market continues to climb a wall of worry and is up over 25% year-to-date.
However, there remains an elevated level of geopolitical risk globally.
Defense stocks have historically outperformed the broad market during times of global conflict. And, many defense companies pay solid dividend yields with the ability to raise dividends each year.
This article discusses the prospects of three resilient defense stocks, which offer reliable dividends.
Northrop Grumman (NOC)
Northrop Grumman Corporation is one of the five largest U.S. 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 completed its acquisition of Orbital ATK in 2018 and divested IT Services in 2021. 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 $39.3B in 2023.
Northrop Grumman reported excellent results for Q2 FY 2024 on July 25th, 2024. Companywide revenue increased 7% and diluted earnings per share rose 19% to $6.36 from $5.34 on a year-over-year basis because of higher sales, pension gains, but higher interest expense.
Revenue for Aeronautics Systems rose 14% in the prior year due to higher volumes in restricted, Triton, and F-35 programs. Revenue for Defense Systems grew 7% in comparable quarters due to higher sales in GMLRS, SiAW, IBCS, and ammunition programs.
Revenue for Mission Systems increased 5%.
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.
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 and strike missile volumes.
Rotary and Mission Systems net sales climbed 17%.
LMT has increased its dividend for 22 years.
Huntington Ingalls Industries (HII)
Huntington Ingalls Industries was spun out of Northrop Grumman (NOC) in a tax-free transaction in 2011.
The company primarily builds nuclear and non-nuclear ships for the U.S. Navy.
Huntington Ingalls has an entrenched position in its end markets.
Its main competitive advantage is its expertise in designing and fabricating bespoke ships for the U.S. Navy.
This expertise is not easy to replicate and hence the company enjoys a wide business moat.
Indeed, in the U.S., the company is the only provider of nuclear aircraft carriers, one of the two providers of nuclear submarines and the only provider of amphibious assault ships.
Thanks to its wide business moat, Huntington Ingalls has proved resilient to economic downturns.
Huntington Ingalls reported solid Q2 2024 results on August 1st, 2024.
Company-wide revenue rose 6.8% to a record $2.977 billion while diluted earnings per share increased 34% to $4.38 from $3.27 on a year-over-year basis on higher sales, and growth in all three segments.
Companywide operating margins increased 75 bps to 6.3% from 5.6%.
Future growth for HII is likely as the Pentagon is spending heavily on aircraft carriers, nuclear submarines, and amphibious assault ships.
The U.S. Navy has a goal of 355 ships by 2034. Huntington Ingalls should experience top and bottom-line growth due to the sale of ships and submarines.
The company also acquired Alion Science & Technology and bulked up its Mission Technologies segment.
The company has raised its dividend for 12 consecutive years. It has a solid payout ratio of 31% and a decent balance sheet, meaning it can easily extend its dividend growth streak for many more years.
Disclosure: No positions in any stocks mentioned.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.