Seven Dividend-paying Defense Stocks Serving the U.S. Army and Shareholders

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Seven dividend-paying defense stocks serving the U.S. Army and shareholders are surging amid the most monumental procurement cycle since President Ronald Reagan’s two terms in the 1980s.

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The seven dividend-paying defense companies serving the U.S. Army and shareholders received a lift Dec. 29 when President Biden signed a $1.7 trillion federal spending bill that provided the U.S. Department of Defense (DoD) $797.7 billion in discretionary funds for fiscal year 2023, up $69.3 billion, or 9.5%, from fiscal year 2022. The amount appropriated by Congress for the national defense topped the president’s DoD budget request by $36.1 billion.

The spending is intended to develop, maintain and equip the U.S. military and intelligence community. The beefed-up funding also expanded weapons procurement by $5.9 billion, a $1.1 billion increase, or 22.9%, from President Biden’s request, as Russia wages war against Ukraine.

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A big threat in the Asia-Pacific region is manifested by China’s military flyovers and other provocations against Taiwan, Japan, South Korea, Australia and additional nations in that sphere of the world. Bipartisan support for enhanced U.S. defense spending resembles what occurred with President Reagan’s unwavering drive for a strong national defense that started with his inauguration on January 20, 1981, and carried through his second term on January 20, 1989.

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Seven Dividend-paying Defense Stocks Serving the U.S. Army and Shareholders: Hexcel

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The seven dividend-paying defense stocks serving the U.S. Army and shareholders topped the overall 2022 market performance by jumping as the major indices fell. Momentum seems intact for 2023 on the heels of President Biden signing legislation to enhance U.S. warfighting capabilities.

One of the defense stocks that is strongly supporting the U.S. Army is Hexcel (NYSE: HXL), a Stamford, Connecticut, company engaged in the space and defense market. Hexcel manufactures advanced composites used in commercial helicopters and in military aircraft. It currently is qualified to supply materials to a broad range of more than 100 helicopter, military aircraft and space programs.

Chart courtesy of www.stockcharts.com

Seven Dividend-paying Defense Stocks Serving the U.S. Army: Hexcel

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Hexcel’s top 10 programs by revenues represent about 56% of sales for its Space and Defense business segment. Key programs include the F-35 joint strike fighter, Sikorsky CH53K King Stallion, V-22 Osprey tilt rotor aircraft, UH60M Blackhawk, AH-64 Apache, A400M military transport, European Fighter Aircraft (Typhoon), F/A-18E/F (Hornet), Rafale fighter jet and MH90 Enforcer.

Space applications for advanced composites include solid rocket booster cases, fairings and payload doors for launch vehicles, and bus and solar arrays for military and commercial satellites. Hexcel also produces advanced composites for helicopter blades. Numerous new helicopter programs in development, as well as upgrade or retrofit programs,show increased reliance on composite materials products such as carbon fiber, prepregs and honeycomb core to improve blade performance.

BoA Global Research placed a buy recommendation on Hexcel. The investment firm assigned a $70 per share price objective to the stock.

Jim Woods, a seasoned stock picker and the leader of the Bullseye Stock Trader advisory service, recommends stocks and options that include defense investments. Woods, who concurrently heads the Intelligence Report investment newsletter, is a former Army paratrooper who has invested in defense stocks profitably. Woods has been bullish on selected companies in the industry and recently recommended the stock and options of a traditional defense investment.

Paul Dykewicz meets with Jim Woods, head of Bullseye Stock Trader.

Seven Dividend-paying Defense Stocks Serving the U.S. Army: Howmet Aerospace

Howmet Aerospace (NYSE: HWM), an advanced engineering company in Pittsburgh, received a buy recommendation and a $45 a share price target from BoA Global Research. Howmet provides some critical components in the F-35 joint strike fighter that hits Mach 1.6 under the thrust of possibly the most advanced engine on earth. The joint strike fighter is built with cutting-edge materials, integrated airframe design and next-generation avionics to enable this fifth-generation fighter jet to operate with unprecedented stealth, speed and agility in air-to-air and air-to-ground combat, company officials said.

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In developing this complex machine, Lockheed Martin (NYSE: LMT) turned to Howmet to provide key parts that include single-piece forged aluminum bulkheads that form the “backbone” of the aircraft structure and save 300 to 400 pounds per jet, while cutting costs by 20%. The fighter jet also has titanium bulkheads and uses titanium to manufacture other airframe structures for all three F-35 JSF variants. Howmet further supplies single-crystal, nickel-based superalloy blades and vanes that operate in environments hotter than the melting point of the metal to propel the engine.

Joint Strike Fighter Is a Multirole Combat Jet Capable of Flying at Mach 1.6.

To hold together the design, Howmet’s vibration-resistant fasteners are engineered to endure extreme G-forces and performance requirements. From nose to tail, Howmet Aerospace helps its customers meet aggressive weight, range and fuel efficiency targets to enable the F-35 to do what other military aircraft cannot, according to Howmet statement.

Woods teams up with Mark Skousen, PhD, the head of the Forecasts & Strategies investment newsletter, on the Fast Money Alert trading service that invests in stocks and options. Skousen, who also is a Chapman University Presidential Fellow and a descendant of Benjamin Franklin, recently was named the first Doti-Spogli Chair in Free Enterprise at the academic institution’s Argyros School of Business and Economics.

Mark Skousen, a scion of Ben Franklin and chief of Fast Money Alert, meets Paul Dykewicz.

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Seven Dividend-paying Defense Stocks Serving the U.S. Army: Lockheed Martin

Lockheed Martin Corp. (NYSE: LMT) is the top defense stock that Woods chose to offer attendees at the 2023 MoneyShow. LMT is the world’s largest defense contractor, and it has dominated the Western market for high-end fighter aircraft since the F-35 program was awarded in 2001. Lockheed’s largest segment is aeronautics, but the company also offers rotary and mission systems, missiles and fire control and space systems.

In December 2022, the United States was in the process of finalizing plans to provide Ukraine with Patriot missile-defense systems in its war against Russia, and this could be a big revenue driver for LMT. That’s because while the Patriot system is built by Raytheon Technologies (NYSE: RTX), the missiles it fires are made by Lockheed.

Think of the Patriot deal as offering bullish “NewsQ,” i.e., information that can lift stocks, Woods said. Such news can drive LMT shares upward in 2023, Woods added.

“Yet what I like about LMT is not just the bullish NewsQ, but also its earnings growth and its 2022 share price performance,” Woods commented. “On the earnings front, the company’s recent quarterly and annual earnings per share growth rates are in the top quintile of all companies, and I expect this metric to rise into next year.”

On the share price performance front, LMT’s 2022 gain vaulted it into the top 6% of all companies in terms of relative price strength, Woods continued. Finally, the ongoing Russia-Ukraine war shows the world is still an extremely dangerous place, and one where conventional warfare in Europe could very well become a continuing reality. As a result, governments must get ready, and that means they need LMT capabilities, he added.

Chart courtesy of www.stockcharts.com

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Seven Dividend-paying Defense Stocks Serving the U.S. Army: L3Harris Technologies

L3Harris Technologies (NYSE: LHX), a Melbourne, Florida-based defense contractor and information technology services provider, produces C6ISR systems and products, wireless equipment and tactical radios. It also netted a buy recommendation from BofA Global Research. The defense company, consisting of Integrated Mission Systems, Space & Airborne Systems and Communication Systems, received a $285 price target from BofA.

The valuation is in line with the median for a pure play defense stock, BofA wrote. However, an improved sentiment on defense spending should sustain a relative valuation slightly above the historical average, the investment firm added.

Potential reasons for the company to beat its price target include winning more business on new and existing programs versus BofA’s current expectations. Risk to the stock includes possible integration of past acquisitions that may put a strain on the company’s cash and impact free cash flow estimates.

Chart courtesy of www.stockcharts.com

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MAG Aerospace and L3Harris Technologies provide enhanced intelligence, surveillance and reconnaissance (ISR) aircraft to support the Army’s Theater Level High-Altitude Expeditionary Next Airborne ISR Radar (ATHENA-R) program. The ATHENA-R aircraft, converted Bombardier Global Express 6500s with ISR mission capabilities, will support U.S. Army missions in the U.S. Indo-Pacific Command area. Designed to close the gap between the Army’s medium- and high-altitude ISR aircraft fleet, the ATHENA-R provides longer range, greater endurance and more capacity for bigger payloads and standoff ranges, as well as leading-edge sensor technology.

The partnership with L3Harris should deliver breakthrough C5ISR capability to Army combatant commands, said Joseph Reale, CEO, MAG Aerospace. The two companies will equip the aircraft with new radar and electronic and communications intelligence capabilities. MAG delivers command, control, computers, communications, cyber and ISR service delivery to bring turnkey disruptive technology to the U.S. government and allied customers around the world. L3Harris currently operates a Bombardier Global Series jet as part of its Airborne Reconnaissance and Electronic Warfare System (ARES), supporting Army Pacific Command and expanding its extensive Army ISR portfolio as part of the L3Harris and MAG ATHENA partnership.

Seven Dividend-paying Defense Stocks Serving the U.S. Army: Leidos Holdings

Reston, Virginia-based Leidos (NYSE: LDOS), a science and technology company, has won prime contracts from the U.S. Army. One is the Geospatial Center’s (AGC) High-Resolution Three Dimensional (HR3D) Geospatial Information Operation and Technology Integration program. That single-award contract has a total estimated value of $600 million, if all options are exercised.

The period of performance for the contract includes a one-year base, as well as three one-year options. Work will be performed predominately in Virginia, among other locations.

Chart courtesy of www.stockcharts.com

Leidos, previously known as Science Applications International Corporation, serves the U.S. defense, aviation, information technology and biomedical research industries. The company also provides scientific, engineering systems integration and technical services.

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Seven Dividend-paying Defense Stocks Serving the U.S. Army: LDOS Price Target

BofA set a price target of $130 per share on Leidos, forecasting that the company should trade in line with defense prime contractors amid strong U.S. national security demand for innovative technologies and solutions. The company also has solid free cash flow, countered by a lumpy contract award environment, near-term supply chain pressures and mounting concerns about labor inflation, BofA added.

Risks to reach the price target include possible cuts to the U.S. government budget, compared to expectations, increased competition from non-traditional competitors and integrating mergers and acquisitions (M&As), hiring the right personnel, containing costs, estimating costs and executing on fixed price contracts, BofA wrote.

Potential outperformance could come from a better-than-expected federal budget allocated to innovative technologies and modernization, inexpensive and well-integrated mergers and acquisitions activity, along with unexpected capital return to shareholders through dividends or share buybacks, market share gains, or better-than-forecast margin, BoA wrote.

Seven Dividend-paying Defense Stocks Serving the U.S. Army: GD

General Dynamics (NYSE: GD), a global aerospace and defense company based in Reston, Virginia, is a recommendation of Woods in his Intelligence Report investment newsletter. Woods chose the dividend-paying defense stock to include in his Income Multipliers portfolio.

The company produces combat vehicles, nuclear-powered submarines and communications systems to provide safety and security during military missions. General Dynamics employs more than 100,000 people worldwide and generated $38.5 billion in revenue in 2021. Woods noted that the company pays a dividend that currently yields more than 2%.

General Dynamics also received a “buy” recommendation from BofA, which set a price target of $305 per share, based partly on a 5.0% 2025-2030 growth rate and 2.8% long-term growth rate, as well as increased defense budget expectations. BofA wrote that the company’s defense program provides exposure to land and sea priorities, coupled with its Gulfstream business jet manufacturing segment, offering near-term and medium-term organic growth.

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Other pluses are the company’s strong balance sheet and solid cash generation, helping to sustain dividend growth and share repurchases, BofA wrote. Potential downside risks to reaching that price target, according to BofA, are a possible drop in business jet sales due to an exogenous factor and the pricing of business jets in dollars, making the company vulnerable to an unexpected devaluation of America’s currency that could significantly slow orders. Any adverse impact on profit margins for defense programs and unforeseen government budget cuts could curb growth in the medium- and long-term, BofA added.

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Seven Dividend-paying Defense Stocks Serving the U.S. Army: Northrop Grumman

Northrop Grumman (NYSE: NOC), a multinational aerospace and defense technology company headquartered in Falls Church, Virginia, is one of the world’s largest weapons manufacturers and military technology providers with 90,000 employees and upward of $67 billion in 2021 annual revenue, based on the latest information available at press time. It also is a recommendation of BofA and has the potential to rise 20-25% in the next 12-18 months compared to the company’s current share price, said Michelle Connell, a former portfolio manager who heads Dallas-based Portia Capital Management.

Michelle Connell leads Dallas-based Portia Capital Management.

Increased geopolitical tensions do not look likely to end soon and defense stocks should continue to have an allocation in an investor’s portfolio, Connell counseled. Until a recent “exacerbated pullback” in the markets, defense stocks like Northrop Grumman had performed well, she added.

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Northrop Grumman stands out from the defense stock pack, Connell told me, partly due to:

-Developing the first B-21 bomber for the Air Force, after the company passed its first round of tests about the efficacy of the bomber that is expected to be released for its first flight later in 2023.

-Preparing next-generation ballistic missile systems under the name of Sentinel.

-Growing three-year revenue and profits strongly, even though sales were weak in the last quarter due to shortages of labor and supply chain issues that may continue.

Interested buyers of the dividend-paying stock may want to dollar-cost average when purchasing shares and start collecting dividend payouts, Connell advised.

Seven Dividend-paying Defense Stocks Serving the U.S. Army Lifted by Institutions

“I take some solace in knowing that before the recent pullback, the stock volume and institutional buying for NOC had increased,” Connell said.

BofA derived a $550 per share price objective on the stock, partially due to a 4% year over year growth rate for 2025-2030 estimates and a 2.5% long-term growth rate. In addition, the U.S. Defense Budget Authorization has grown at a 1.8% compound annual growth rate (CAGR) in constant dollars since post World War II, BofA’s Epstein wrote.

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Northrop Grumman’s growth rate may exceed the industry norm with the most profitable production phase of the B-21 Raider program starting in about 10 years and the U.S. Air Force’s Ground Based Strategic Deterrent (GBSD) entering production at the end of this decade. The GBSD is the replacement weapon system for the aging LGM-30 Minuteman III intercontinental ballistic missile (ICBM) system, Epstein wrote in a recent research note.

Potential risks to the stock include possible defense program cost overruns and margin contractions. Further stumbles could come from any unexpected cancellations to both the company’s commercial and military programs, Epstein added.

Chart courtesy of www.stockcharts.com

Seven Dividend-paying Defense Stocks Serving the U.S. Army Face COVID Risk

Public health risk is on the rise, based on satellite images of Chinese cities showing crowding at crematoriums and funeral homes, with the world’s most populous country waging a battle with a new wave of COVID-19 infections after relaxing its strict pandemic restrictions. An internal meeting of China’s National Health Commission estimated that up to 248 million people contracted the coronavirus during the first 20 days of December.

The number of COVID-19 cases has reached a record high in mainland China, according to the European Centre for Disease Prevention and Control (ECDC). However, cases in China reportedly have fallen in recent weeks, but possibly because of a lack of sufficient COVID tests, according to news reports.

The U.S. government began requiring negative COVID-19 tests starting Thursday, Jan. 5, for all passengers seeking to enter the country from China after the latter country’s spike in COVID-19 cases. France, Italy, Japan, India, South Korea and Taiwan also mandated negative COVID-19 tests for passengers arriving from China, reflecting global concern that new variants could emerge.

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China has been accused by some Western public health officials of lacking transparency since the virus emerged in late 2019. Critics contend China may not be sharing data about evolving strains that could spark fresh outbreaks elsewhere.

Seven Dividend-paying Defense Stocks Serving the U.S. Army as COVID Cases Surge 

Worldwide COVID-19 deaths soared to 6,737,944 people, with total cases of 668,580,496, Johns Hopkins University announced on Jan. 20. COVID-19 cases in the United States totaled 101,998,621, while deaths reached 1,104,103, as of Jan. 20, according to Johns Hopkins.

The U.S. Centers for Disease Control and Prevention reported that 268,765,902 people, or 81.0% of the U.S. population, have received at least one dose of a COVID-19 vaccine, as of Jan. 18. People who have completed the primary COVID-19 doses totaled 229,08,443 of the U.S. population, or 69.1%, according to the CDC. The United States has given a bivalent COVID-19 booster to 47,859,040 people who are age 18 and up, equaling 18.5% as of Jan. 18, up from 18.2% on Jan. 11, 17.7% as of Jan. 4, 17.3% on Dec. 28 and 16.8% the previous week.

Ukraine’s President Volodymyr Zelensky’s unannounced Dec. 21 flight to Washington, D.C., allowed him to meet with U.S. President Joe Biden to advocate for needed military equipment to defend effectively against Russia’s continuing attacks. Zelensky’s address to a joint session of Congress that evening appears to have swayed many U.S. lawmakers to support funding for his embattled country. The visit marked Zelensky’s first international trip since Russia’s invasion.

Russia is sustaining its onslaught of intensified strikes that began in October, targeting Ukraine’s energy and civilian infrastructure.

Seven Dividend-paying Defense Stocks Serving the U.S. Army Amid Russia’s War

Even though Russia’s leaders describe their attack of Ukraine, launched on February 24, 2022, as a “special military operation,” its soldiers are intensifying their assault of the Ukrainian city of Bakhmut. One of Russia’s military leaders claimed his troops had gained control of a key city, Soledar, nearby in eastern Ukraine.

Secretary of Defense Lloyd Austin recently cautioned that time is short for the United States and other Western countries to provide Ukraine with needed advanced weapons prior to a stepped-up Russian offensive in the spring. Ukraine’s soldiers also will require training to use the weapons it receives, Secretary Austin added.

The Ukraine Defense Contact Group, consisting of U.S.-assembled defense ministers, announced major new commitments of weapons, including an additional $2.5 billion of Bradley fighting vehicles, Stryker vehicles and other important tanks and military equipment. Both the United States and Germany thus far have resisted requests to provide their best battlefield tanks.

The seven dividend-paying defense stocks serving the U.S. Army also supply the Ukraine and other allied nations with weapons and other equipment to preserve freedom. Billions of dollars of Western weapons and equipment have been sent to Ukraine and more reportedly is on the way.

With Russia’s military turning some of its imprisoned criminals into front-line soldiers, the aggressor’s Army is gaining reinforcements. Russia’s leaders also called up 300,000 conscripts and announced plans to expand the eligible age for its draft as part of a strategy to wage a long-term war, suggesting investors of dividend-paying defense stocks may profit by buying shares of companies that help to protect freedom around the world.

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Paul Dykewicz

Paul Dykewicz, www.pauldykewicz.com, is a respected, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other investment reports.

Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. In addition, Paul serves as a commentator about investing, economics, business news, politics and motivational guidance. 

Paul earned a master’s degree in business administration with a focus on finance at Baltimore’s Johns Hopkins University, where he was elected to two terms as president of its Finance Club. He earlier received a master’s degree from Michigan State University’s School of Journalism, where he was inducted into the Kappa Tau Alpha honor society. Paul received a bachelor’s degree from the University of Michigan in Ann Arbor, focusing on political science, business and economics.

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