The Best Defence Stocks To Buy For Now And The FutureMarch 23, 2022
While it is an often overlooked and sometimes forgotten investment for many market traders, defence stocks have been trending on the stock market in recent weeks.
Largely driven by rising geopolitical tensions, particularly in the wake of the ongoing Russia-Ukraine conflict and a heated situation in the South China Sea, these stocks have experienced a rise in popularity.
In this article, we will be casting our eye over some of the best defensive stocks currently on the market, as well as looking ahead to some of the most attractive future prospects that traders can get their hands on going forward.
What are Defence Stocks?
Defence stocks, also known as military stocks, are essentially shares in companies that form a par of defence industry, which is responsible for the production of modern weaponry, including combat vehicles, ships, bombers, fighter jets, and other armed forces machinery.
The manufacturing of a military-grade weapon is a significant undertaking, and is something that can yield significant profits for the companies contracted to produce them for their clients, which are usually national governments or nation states.
When looking into whether to invest in defence stocks, context is everything. Demand for weaponry inevitably goes up in times of crisis or during moments of geopolitical uncertainty. In the case of a major war or conflict, such as the Russian invasion of Ukraine, the share price of defence companies can skyrocket in value.
Top Defence Stock Investments
- Textron Inc. (TXT)
Textron operates a diversified business model, having a strong presence within the aircraft, defence, industrial, and finance sectors. The main advantage of such an approach is that it can offset any sector-specific setbacks by its performances in the other sectors it has business in.
The company has remained consistent over the years, having paid a dividend to shareholders in each of the past three decades. It is also recognised for its strong brand portfolio, featuring the likes of Bell, Cessna, Beechcraft, E-Z-GO, and various others.
During the fourth quarter of 2021, Textron posted a revenue of more than $3.3. Billion, with an earnings per share of $0.94. In February 2022, it declared a quartet dividend of $0.02 per share, while its forward yield was 0.12%, falling in line with its previous figures.
- Lockheed Martin (LMT)
Lockheed Martin is an American aerospace, arms, defence, information security, and technology company, and is another company that is favoured by dividend-growth investors, thanks to 20 consecutive years of dividend growth.
LMT had a dividend of $0.11 per share per quarter in 2002, rising to $2.80 per share per quarter in 2022, at the time of writing. To put this into context, had investors first purchased Lockheed Martin stock in 2021, when it was trading for $89 per share, they would have enjoyed a total annual return exceeding 12% in each and every year since.
The future prospects also look promising, as NATO nations look to shore up their military capacity in the wake of the Ukraine invasion, as evidenced with Germany recently making an order for 35 F-35 fighter jets made by Lockheed Martin. LMT is also the largest defence contractor for the US military and its top customer has an astronomical defence budget.
- General Dynamics (GD)
The defence contractor General Dynamics, which also doubles up as a business jet manufacturer, is considered to be one of the best defence stocks in terms of paying out a dividend to shareholders.
As a company, GD has performed exceptionally well recently, with decade-high order numbers for its Gulfstream jet last year, with a 40% year-over-year increase in its total backlog within its aerospace section.
Moreover, the defence production wing of the company generated its highest ever revenue and operating earnings in 2021, while the GD’s full-year net earnings stood at $3.3 billion, or $11.55 per diluted share, on a revenue of $38.5 billion.
- Raytheon Technologies (RTX)
Raytheon Technologies is a US multinational company, operating as one of the world’s largest aerospace and defence companies in terms of revenue and market capitalisation, meaning it is well-placed to capitalise on increasing energy prices, cybersecurity, and geopolitical tensions.
The company is well diversified in its structure, with 35% of its sales coming from commercial uses, and just 62% emanating from the US. The result of this is a diverse source of income, which, in turn, gives Raytheon better durability.
While sales are expected to increase on the defence side due to geopolitical tensions, the company also offers value for investors, currently paying out a 2% dividend, which is safe as it only takes 76% of the GAAP earnings and 47% using non-GAAP earnings.
As with any type of stock investment, it is important to thoroughly understand the market by keeping updated with the latest developments, prior to entering into any long or short positions.
Due to the ever-changing nature of geopolitical issues, those interested in defence stocks need to ensure they are well informed about ongoing events, as the situation can alter drastically.
Generally speaking, increasing conflict is good for the share price of defence companies, who gleefully sign major new contracts with state regimes and national armed forces.
With the ongoing issues surrounding the Russian invasion of Ukraine, and growing tensions between China and Taiwan, now could be the time to look into defence stocks as a potential investment opportunity.