U.S. military spending will hit $923.3 billion in 2025, which represents a 4.1% jump from 2024. Defense stocks are a great way to get stability and growth for investors like us in this volatile market.
The defense industry really stands out because it has predictable, long-term government contracts while other sectors struggle with uncertainty. Zen Ratings shows that 52% of defense stocks have earned a strong buy rating. Analysts expect these stocks to climb 17.73% on average next year.
We have carefully picked the safest defense stocks that deliver steady growth and beat market returns. These companies must show three-year revenue growth above 5% and operating margins higher than 10%. Let’s look at these top defense picks that could make your portfolio stronger in 2025.
Lockheed Martin (LMT): The Defense Industry Stalwart
Image Source: PR Newswire
Lockheed Martin leads the U.S. defense industry as its biggest contractor with a market value of $104.04 billion. The company operates 350 facilities in 53 countries and works with 13,181 suppliers, including more than 12,200 in the U.S.
Lockheed Martin’s Financial Stability and Growth Metrics
The aerospace giant showed strong financial results in 2024 with net sales of $71.0 billion, which grew by 5%. The company holds a record backlog of $176.0 billion that points to substantial future earnings. Its commitment to growth reflects in $1.5 billion spent on research and development and $1.7 billion on capital expenditures.
Long-term Government Contracts Providing Revenue Security
U.S. government contracts make up 73% of Lockheed Martin’s revenue, which creates a stable base for steady growth. The F-35 program is a vital component that generates 26% of total revenue. The Space segment grew by 9.3% compared to last year and now represents 18.7% of total revenue.
Dividend History and Future Projections
Investors seeking income can benefit from Lockheed Martin’s dividend yield of 2.83%. The company will pay its first-quarter 2025 dividend of $3.30 per share on March 28, 2025. The dividend payments continue to grow steadily with a sustainable payout ratio of 56.9%.
Performance During Market Downturns
Lockheed Martin has proven resilient during economic challenges. The stock dropped 41% in the 2008 recession but bounced back with a 22% gain. The stock price stands at $466.17, which is 22% higher than its pre-Covid peak. The stock shows lower volatility than major market indices, highlighting its defensive strength.
Analysts expect revenue to grow 4.5% to $74.25 billion in 2025. Lockheed Martin’s strong cash position of $1,442 million and manageable debt make it an attractive option among defense stocks.
Northrop Grumman (NOC): Aerospace Defense Leader
Image Source: Northrop Grumman
Northrop Grumman, a global security powerhouse, generated total revenue of $39.35 billion in 2023 through four distinct sectors.
Northrop’s Diverse Defense Portfolio
The company’s portfolio shows Aeronautics Systems contributing 41.2% of revenue, Mission Systems at 30.7%, Defense Systems at 22.0%, and Space Systems at 6.1%. Their defense capabilities cover advanced weapons, missile defense, and battle management systems. CEO Kathy Warden leads the company with a reliable workforce exceeding 90,000 employees.
Financial Health and Debt Management
The financial structure of Northrop Grumman reveals a debt-to-equity ratio of 106.4% backed by total assets of $49.40 billion. Cash and short-term investments stand at $4.40 billion. The company’s operating cash flow handles debt obligations well, with an impressive interest coverage ratio of 8.8x.
Northrop’s Position in Space Defense
Northrop Grumman stands out as an industry-leading provider of end-to-end space and launch systems. Six decades of missile defense experience give the company a unique position in advanced weapons development and defensive systems. Their expertise extends to sophisticated battle management and command control systems that power modern space defense operations.
Analyst Projections and Price Targets
Eighteen Wall Street analysts have given Northrop Grumman a “Moderate Buy” consensus rating. The average price target reaches $542.88, with estimates from $477.00 to $592.00. Analysts expect an upside potential of 11.68% from the current price of $486.10.
Revenue growth looks promising with projections showing a 4.55% increase to $44.71 billion next fiscal year. Government contracts make up 88.4% of total revenue, while international markets contribute 11.6%. These factors make Northrop Grumman the life-blood investment among defense stocks.
The company’s $79.20 billion backlog value proves its strong market position and ensures long-term revenue visibility. Northrop Grumman keeps its competitive edge by welcoming innovation in hypersonic weapons and sophisticated ballistic missile threats. This strategy helps the company stay ahead in the evolving defense landscape.
RTX Corporation (RTX): Merger-Strengthened Defense Contractor
Image Source: Investor Relations | RTX
RTX became the world’s largest aerospace and defense company after Raytheon Company merged with United Technologies Corporation in 2020.
Post-Merger Financial Performance
RTX showed remarkable results in 2024 with organic sales growing 11% and adjusted EPS rising 13%. The company’s operating cash flow reached $7.2 billion while free cash flow hit $4.5 billion. Shareholders received over $33 billion from RTX since the merger.
RTX’s Commercial and Defense Balance
Three major business segments power RTX: Collins Aerospace, Pratt & Whitney, and Raytheon. The company’s total sales reached $80.7 billion in 2024. Defense segment sales jumped 13% while commercial aftermarket performance grew 12%.
Dividend Safety Analysis
RTX’s dividend growth continues steadily. The quarterly dividend rose to $0.63 per share recently. This shows RTX’s dedication to shareholder returns, backed by its strong cash position and growing backlog.
Global Defense Contracts and Future Revenue Streams
A record backlog of $218 billion points to promising growth prospects for RTX. The defense portfolio has:
- Global Patriot systems
- NASAMS programs
- Counter-UAS initiatives
- Advanced technology programs
International sales make up 43% of RTX’s revenue, showing its strong global presence. The company expects adjusted sales between $83-84 billion in 2025, with organic growth of 4-6%. A team of 57,000 engineers drives breakthroughs across aerospace and defense sectors through research and development.
Chairman and CEO Greg Hayes leads RTX as it manages to keep its position as a leading provider of defensive and offensive threat detection technology. Growing defense budgets worldwide and ongoing global conflicts create opportunities for growth, especially given RTX’s strong government contract relationships.
General Dynamics (GD): Naval and Land Systems Giant
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General Dynamics has secured a substantial USD 5.10 billion contract modification for the Columbia-class submarine program. The company’s Electric Boat division now guides this strategic initiative to build the largest submarines the United States has ever constructed.
General Dynamics’ Submarine and Naval Programs
The Marine Systems segment generated USD 12.50 billion in revenue last year and now oversees significant naval projects. The District of Columbia (SSBN 826) and Wisconsin (SSBN 827) submarines highlight the company’s naval expertise during their current construction phase. These massive vessels stretch 560 feet with a 21,000-ton displacement. Their advanced fuel cores eliminate any mid-service refueling needs.
Gulfstream Business Segment as Revenue Diversifier
The Aerospace division showed remarkable growth as revenue jumped 30.5% year-over-year to USD 11.20 billion. Gulfstream delivered 136 aircraft in 2024, with 118 large-cabin models. The segment managed to keep a book-to-bill ratio of 1.0 that indicates steady market demand.
Cash Flow and Dividend Growth History
General Dynamics runs a strong dividend program with a 2.29% yield. The company has raised dividends for 34 straight years, showing steadfast dedication to shareholder returns. The current annual dividend of USD 6.00 per share reflects a sustainable payout ratio of 43.99%.
Valuation Metrics Compared to Defense Industry Peers
The stock trades at an attractive Price-to-Earnings ratio of 18.7x, well below the industry average of 31.9x. Discounted cash flow analysis suggests the stock remains undervalued at USD 262.03 compared to a fair value estimate of USD 378.96. General Dynamics expects 2025 revenue to reach USD 50.30 billion, highlighting its growth path in the defense sector.
The company’s diverse portfolio spans nuclear-powered submarines, combat vehicles, and business jets. This unique mix sets General Dynamics apart from other defense stocks. Through continuous breakthroughs and mutually beneficial alliances, the company maintains its competitive edge in military and commercial markets.
L3Harris Technologies (LHX): Communication Systems Specialist
Image Source: Business Wire
L3Harris Technologies creates innovative defense electronics and serves over 100 countries with its tactical communication systems.
L3Harris’ Market Position in Defense Electronics
The company delivers mission-critical communication solutions and secured nearly USD 300 million in U.S. Army contracts for Manpack and Leader radio production. These battle-tested systems provide uninterrupted interoperability from tactical edge to aerial tier, whatever electronic warfare attacks occur. L3Harris holds a strong position in C4ISR markets and we focused on command, control, communications, computers, intelligence, surveillance, and reconnaissance capabilities.
Financial Strength Indicators
The company shows solid financial metrics with a working capital ratio of 1.5 and interest coverage of 4.52. L3Harris’ debt management reveals a long-term debt-to-equity ratio of 0.57, which shows prudent financial stewardship. Notwithstanding that, the Altman Z-score of 1.89 points to some financial stress that needs careful monitoring.
International Expansion Opportunities
L3Harris began a mission of global growth and set up operations in Italy to strengthen its NATO presence. The company supports Italy’s Joint Intelligence Center and Air Force through advanced multi-mission systems integration. It also joined Australia’s Global Supply Chain program that opens access to new marketplaces and promotes partnerships with Australian suppliers.
Dividend Growth Trajectory
Income-focused investors benefit from L3Harris’ attractive dividend yield of 2.27%. The company announced its 24th consecutive annual dividend increase that sets the new annualized rate at USD 4.80 per share. The dividend appears well-supported by earnings with a reasonable payout ratio of 33%.
L3Harris sees strong demand from Asia-Pacific, Latin America, and NATO allies. The company’s mutually beneficial alliances, including work with BAE Systems Maritime Australia, highlight its steadfast dedication to international market expansion and technological advancement in defense electronics.
Huntington Ingalls Industries (HII): Naval Shipbuilding Expert
Image Source: HII
Huntington Ingalls Industries, America’s biggest military shipbuilding company, landed a game-changing USD 9.60 billion multi-ship contract in early 2025.
Huntington’s Naval Fleet Contracts
This milestone deal covers building three San Antonio-class amphibious transport dock ships and one America-class amphibious assault ship. The company’s production line has Bougainville (LHA 8) and Fallujah (LHA 9), along with two Flight II LPDs – Harrisburg (LPD 30) and Pittsburgh (LPD 31). HII’s track record shows delivery of 13 San Antonio-class ships and 15 large-deck amphibious ships to the U.S. Navy.
Balance Sheet Analysis and Debt Management
HII stands on solid financial ground with total assets of USD 11.73 billion. The company carries USD 3.46 billion in debt but balances it with USD 831.00 million in cash reserves. A debt-to-equity ratio of 0.74 shows smart debt management. The company generated USD 393.00 million in operating cash flow, demonstrating strong performance.
Technical Services Division Growth
HII’s Technical Solutions division created four specialized groups as part of its strategic expansion:
- Intelligence, Surveillance and Reconnaissance (ISR)
- Live, Virtual and Constructive Solutions
- Cyber and Electronic Warfare
- Fleet Sustainment
The division won substantial contracts worth USD 273.00 million for carrier engineering maintenance. Their “find, fix and train” approach helps improve sailor self-sufficiency during operational deployments.
Valuation and Safety Metrics
HII’s stock trades at USD 196.16, with an attractive price-to-earnings ratio of 14x – well below the industry’s 31.9x average. The company’s Altman Z-Score sits at 2.54, pointing to moderate financial health. Analysts expect the stock to reach USD 221.22, suggesting a potential 12.78% gain. A steady 2.75% dividend yield shows HII’s steadfast dedication to shareholder returns.
Comparison Table
| Company (Ticker) | Main Specialization | Revenue/Sales | Backlog Value | Dividend Yield | Major Programs/Contracts | Global Presence |
|---|---|---|---|---|---|---|
| Lockheed Martin (LMT) | Leading U.S. Defense Contractor | $71.0B | $176.0B | 2.83% | F-35 Program (26% of revenue) | 350 facilities in 53 countries |
| Northrop Grumman (NOC) | Aerospace Defense | $39.35B | $79.20B | Not mentioned | Aeronautics (41.2%), Mission Systems (30.7%) | 11.6% of revenue from global markets |
| RTX Corporation (RTX) | Leading Aerospace & Defense Company | $80.7B | $218B | Not mentioned* | Global Patriot systems, NASAMS | 43% global sales |
| General Dynamics (GD) | Naval & Land Systems | Not mentioned** | Not mentioned | 2.29% | Columbia-class submarine program ($5.10B) | Not mentioned |
| L3Harris (LHX) | Communication Systems | Not mentioned | Not mentioned | 2.27% | $300M U.S. Army radio contracts | Operations in over 100 countries |
| Huntington Ingalls (HII) | Military Shipbuilding | Not mentioned | Not mentioned | 2.75% | $9.60B multi-ship procurement | Not mentioned |
*RTX offers $0.63 quarterly dividend with unspecified yield **Expected revenue by 2025: $50.30B
Conclusion
Defense stocks prove to be reliable investment choices when markets become uncertain. Government spending backs this reliability with a projected $923.3 billion by 2025. A closer look at these companies reveals unique strengths that create a well-balanced defense portfolio.
The industry giants each bring something special to the table. Lockheed Martin boasts an impressive $176 billion backlog. RTX Corporation shows remarkable growth after its merger. Northrop Grumman’s space defense capabilities shine brightly. General Dynamics excels at naval systems. L3Harris Technologies rules the communication systems space. Huntington Ingalls Industries remains the shipbuilding leader.
These powerhouses share several advantages. Their government contracts provide stability. Dividend yields range attractively from 2.27% to 2.83%. A strong international presence adds to their appeal. The combined backlog of $473 billion points to steady future revenues.
The outlook appears promising. Analysts expect defense stocks to grow by 17.73% next year. Rising global defense budgets strengthen this positive outlook. Smart investors should tap into the potential of these defense stocks. They offer both long-term stability and returns that beat the market.
FAQs
Why are defense stocks considered safe investments?
Defense stocks are viewed as safe investments due to their stable government contracts, predictable long-term revenue streams, and resilience during economic downturns. The consistent increase in military spending also contributes to their stability and growth potential.
Which defense stock has the largest backlog value?
Among the companies discussed, RTX Corporation (RTX) has the largest backlog value at $218 billion, followed by Lockheed Martin (LMT) with a backlog of $176 billion. These substantial backlogs indicate strong future revenue potential for both companies.
How do defense stocks perform during market volatility?
Defense stocks typically demonstrate resilience during market volatility. For example, Lockheed Martin showed strong recovery after the 2008 recession, rebounding with a 22% gain. Their defensive nature and lower volatility compared to broader market indices make them attractive during uncertain times.
What is the average dividend yield for these defense stocks?
The dividend yields for the discussed defense stocks range from 2.27% to 2.83%. Companies like Lockheed Martin, General Dynamics, and L3Harris Technologies offer attractive dividend yields, demonstrating a commitment to returning value to shareholders.
How does international presence impact these defense companies?
International presence significantly impacts defense companies by diversifying their revenue streams and expanding market opportunities. For instance, RTX Corporation derives 43% of its revenue from international sales, while Northrop Grumman generates 11.6% of its revenue from international markets. This global footprint helps these companies capitalize on increasing defense budgets worldwide.
