What makes defense stocks different from other sectors?

Defense stocks are companies that primarily contract with governments to provide military hardware, technology, and services. Unlike consumer-focused companies, they derive most of their revenue from government contracts, which tend to be long-term and less affected by economic downturns. This can make them more stable during market volatility and potentially good portfolio diversifiers.

Why do defense stocks often pay dividends?

Many established defense contractors generate steady, predictable cash flows from long-term government contracts. This financial stability allows them to return value to shareholders through regular dividend payments. Companies like Lockheed Martin (LMT) and General Dynamics (GD) have histories of not just paying dividends but increasing them over time.

What is the military-industrial complex?

The military-industrial complex refers to the close relationship between a nation's military, defense industry, and government. It encompasses the network of companies, organizations, and political interests involved in producing weapons, military technology, and related services. This term was popularized by President Eisenhower in 1961 when he warned about its potential influence on government policy.

What are "prime contractors" in the defense industry?

Prime contractors are companies that win major contracts directly from government agencies and are responsible for overall project delivery. They often subcontract portions of the work to smaller, specialized companies. In the U.S. defense industry, major prime contractors include companies like Lockheed Martin, Raytheon Technologies, Northrop Grumman, and General Dynamics.

How do geopolitical tensions affect defense stocks?

Increased geopolitical tensions typically lead governments to boost defense spending, which can benefit companies in this sector. When nations perceive greater security threats, they often invest in military modernization and expansion programs, creating new contract opportunities for defense companies. However, these stocks can also be affected by shifts in government policy, budget priorities, and international relations.

15 handpicked stocks

National Defense

These carefully selected defense companies are at the cutting edge of military technology, providing critical systems to governments worldwide. With stable, long-term government contracts, these stocks offer investment potential that can withstand economic fluctuations.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17