The stock market is facing a “wall of worry” due to the surge of inflation and the increasing risk of an upcoming recession. During such tumultuous periods, risk-averse investors look for stocks that are resilient to bear markets.

Defense stocks have usually outperformed the broad market during difficult periods. And, many defense companies pay solid dividend yields with the ability to raise dividends each year. In this article, we will discuss the prospects of three resilient defense stocks, which offer reliable dividends.

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.

Lockheed Martin (LMT)

Lockheed Martin is the largest defense company in the world. It generates approximately 60% of its revenues from the U.S. Department of Defense, another 10% from other U.S. government agencies and the remainder from international clients. Its aeronautics segment, which generates about 40% of total sales, produces well-known military aircraft, such as the F-35, F-22, F-16 and C-130.

Just like General Dynamics, Lockheed Martin is an established military prime contractor. It has developed the expertise to modernize its platforms and thus the latter have a useful lifetime of decades.

Lockheed Martin has raised its dividend for 21 consecutive years making it is an appealing income stock. It has grown its dividend by 11% per year on average over the last decade and by 9% per year over the last five years. Moreover, Lockheed Martin is currently offering a 2.9% dividend yield.

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 Q2 2023 results on August 3rd, 2023. Company-wide revenue rose 4.7% as diluted earnings per share came to $3.27. Company-wide operating margins decreased 158 bps to 5.6% from 7.2%. Revenue from Ingalls Shipbuilding increased 0.9% from gains in surface combatant ships. Newport News revenue rose 5.3%. Huntington Ingalls’ total backlog now stands at $46.9 billion.

The company has raised its dividend for 10 consecutive years. It has a solid payout ratio of 35% and a decent balance sheet, meaning it can easily extend its dividend growth streak for many more years. HII stock currently yields 2.4%.

_______________
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.

Disclosure: No positions in any stocks mentioned