3 Defense Stocks to Buy as Military Spending Soars

The U.S. missile strike in Syria in April and elevating tension with North Korea remind investors that geopolitical upheaval is likely to continue.
Adding to geopolitical crosswinds was an uneasy G7 meeting in Italy last week as leaders met to discuss NATO and global issues.
The Trump administration has indicated a willingness to use military action and has proposed generous hikes in military spending.
While geopolitical risk is usually bad for the stock market as a whole, the defense industry stands to benefit from this strong trend.
Here are three defense stocks to buy now that will benefit in this climate.

Defense Stocks: Lockheed Martin (NYSE: LMT)

Lockheed is a global defense company and a giant in the defense industry, with an $81 billion market capitalization and $46 billion of annual revenue.
Lockheed’s biggest business is aeronautics, which operates its flagship F-35 fighter jet program. The F-35 by itself accounts for roughly 20% of the company’s annual revenue.
The F-35 led the way for Lockheed last year, and fueled 16% revenue growth, along with 10% earnings growth for the company.
Lockheed has several other profitable segments including a technology systems platform helping civil groups, defense groups and agencies to collect and analyze data.
Lockheed also manufactures missile defense systems, military and civil helicopters, and conducts research and development for satellites, missile systems and space transportation systems.
Overall, Lockheed generated more than $5 billion of operating cash flow last year, which allowed it to raise its dividend by 10% and repurchase $2 billion of its own stock.
Lockheed is highly profitable, and returns cash to shareholders through buybacks and dividends. Its current dividend yield is 2.7%.

Defense Stocks: General Dynamics (NYSE: GD)

General Dynamics manufactures aviation and combat vehicles, weapons systems and munitions. Its core operating segments are aerospace, combat systems, information systems & technology and marine systems.
General Dynamics generated $31.4 billion in revenue last year. That was a slight 0.4% drop from a year earlier, but that was mostly due to the strong U.S. dollar. Going forward, a more militarily active Trump administration could be a tailwind for revenue growth.
The company saw weaker orders last year for its Gulfstream jets, but offset this with cost discipline. Operating profit margins expanded in 2016. And, General Dynamics posted 2% revenue growth in both the information systems & technology and marine systems businesses.
General Dynamics’ earnings per share increased 9% last year, and should continue to rise in 2017.
General Dynamics has a 1.8% dividend yield, but it makes up for its below-average yield with dividend growth.
General Dynamics is a reliable dividend payer: the company has increased its dividend for 25 consecutive years. Last year, it raised its dividend by 10%, and authorized the repurchase of up to 10 million of its own shares.

Defense Stocks: Raytheon (NYSE: RTN)

Raytheon generated net sales of $24 billion in 2016, up 3.5% from the previous year. It had earnings per share of $7.44, up 9% from the previous year.
The company produced $2.9 billion of operating cash flow in 2016.
Raytheon’s best-performing operating division last year was its missile systems business. Raytheon generated 8% sales growth and 6% operating profit growth in missile systems. This was due largely to strong orders for its Paveway laser-guided bomb program.
In 2017 and beyond, Raytheon is well-positioned for continued growth among other defense stocks.
Raytheon specializes in in defense, civil government and cybersecurity solutions; all are hot-button issues generating high interest. Raytheon’s product and service lineup of electronics, mission systems integration, sensing and mission support should see strong demand in times of global uncertainty.
Raytheon ended 2016 with a record $27 billion in bookings, a positive indicator of future growth.
The company expects 3% to 5% revenue growth in 2017.
Raytheon has a 2.1% dividend yield. It recently increased its dividend by 9%, marking its 13th consecutive year of dividend growth.

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