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A safe haven amid global uncertainty?

In a world where technology is advancing rapidly, defense stocks may not look as exciting as the ones that come from Silicon Valley. But here’s the thing: no matter what the economy is doing — and what the Fed does to its benchmark interest rates — governments worldwide tend to prioritize national security.

In other words, defense contractors can make money even when the economy slows down. With many experts forecasting a recession this year, that’s a good quality to have.

Don’t forget, we live in a time of increasing geopolitical tensions. No one wants to see Armageddon, but if conflicts arise, you can bet that defense spending will likely increase.

In fact, the amount that countries are spending on their militaries is already astronomical. According to the Stockholm International Peace Research Institute, global military expenditure totaled $2.113 trillion in 2021.

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Defense stocks for investors

With that in mind, let’s take a look at three defense stocks. This trio also pays dividends.

Lockheed Martin

Known for its F-35 fighter jets, Lockheed Martin (NYSE:LMT) is the largest defense contractor in the world by revenue.

The company operates through four business segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.

In Q4 of 2022, each of the four segments delivered higher net sales compared to a year ago.

For the entire company, net sales grew 7% year over year to $19.0 billion.

Lockheed Martin pays quarterly dividends of $3.00 per share, translating to an annual yield of 2.6%.

Going forward, the company will likely remain busy as its backlog totaled $150.0 billion as of Dec. 31.

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General Dynamics

General Dynamics (NYSE:GD) is deeply entrenched in the global aerospace and defense business. It offers a broad portfolio of products and services, ranging from Gulfstream business jets and combat vehicles to nuclear-powered submarines and communications systems.

In 2022, revenue grew 2.4% from 2021 to $39.4 billion while net earnings improved 4.1% to $3.4 billion.

General Dynamics chairman and CEO Phebe N. Novakovic remarked that the company had “good backlog growth” fueled by “robust demand at Gulfstream.”

Indeed, General Dynamics’ backlog of $91.1 billion was the highest in its history.

The company paid $1.4 billion in dividends in 2022 and currently yields 2.2%.

Northrop Grumman

Given the heightened military spending and concerns about the potential for military conflict, it’s no surprise that defense stocks have become the better performers in the market.

Case in point: shares of Northrop Grumman (NYSE:NOC) shot up 20% in the last 12 months, in stark contrast to the S&P 500’s 8% decline over the same period.

Northrop Grumman is another heavyweight player in the aerospace and defense industry. It built the B-2 stealth bomber — the only stealth bomber in the world. In fact, the B-2 is so iconic that it has appeared in quite a few movies, including Independence Day and Armageddon.

The U.S. Department of Defense recently unveiled the B-21 Raider — the next-generation stealth bomber built by Northrop Grumman.

In 2022, the company generated $36.6 billion in revenue, up 3% from 2021. Northrop Grumman has a quarterly dividend rate of $1.73 per share, which comes out to an annual yield of 1.5%

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

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