Three Dividend-paying Defense Contractors to Buy

05/01/2026

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Three dividend-paying defense contractors to buy feature industry giants that seem well positioned with the Trump administration seeking a 44% increase in the U.S. military budget for fiscal year 2027 from fiscal year 2026. 

The advantage to owning bigger rather than smaller companies is that they are more diversified by engaging in various activities other than those that are more narrow. The hefty hike in the proposed U.S. defense budget occurs as the United States and Israel are in a temporary cease fire with Iran, whose current leaders so far have refused to agree to end the nation’s development of a nuclear weapon and to relinquish its growing stockpile of enriched uranium that can be used to build and launch nuclear missiles at U.S. interests, its allies and other countries. 

The three defense contractors to buy are involved in the drone business that has become a key product for both offensive and defensive uses during modern warfare. Even though all three companies are involved in the drone business that consists of Unmanned Aerial Vehicles (UAVs), they operate in different but sometimes overlapping areas that range from manufacturing to maintenance and counter-drone systems. 

Three Dividend-paying Defense Contractors to Buy: Drone Roles

To unleash American drone dominance, bolster the American drone manufacturing base and protect American service members from unmanned systems of adversaries, the proposed fiscal 2027 budget requested by the Trump administration seeks “unprecedented investments” in unmanned and counter-unmanned systems. The funding would arm America’s military’s combat units with drones, while also providing protection against the proliferation of inexpensive unmanned systems by near-peer competitors, rogue states and non-state actors, according to the budget document. 

The funding also would enable innovative contracting approaches that provide flexibility in rapidly maturing technology and in delivering a portfolio of capabilities that broaden opportunities for new entrants, the request noted. 

One such opportunity for a new entrant helped hold down the cost of the Pentagon’s new Low-cost Uncrewed Combat Attack System (LUCAS) to just $35,000. That modestly priced drone debuted in combat with Iran this year. 

LUCAS emerged from reverse-engineering Iran’s Shahed drone design. The LUCAS is autonomous, long-range and capable of swarm strikes, all for about the price of a midsize pickup truck, according to U.S. Global Investors. 

“To put that in perspective, a Tomahawk cruise missile runs about $2.5 million,” U.S. Global reported. “A Patriot interceptor? Around $4 million per shot.” 

LUCAS is manufactured by SpektreWorks, an engineering company in Phoenix, Arizona. Developed as an American, one-way kamikaze drone, LUCAS is a spinoff of the company’s FLM 136 target model. 

Three Dividend-paying Defense Contractors to Buy: Advancing AI 

The United States also is seeking to sustain its early inroads in artificial intelligence (AI) to transform how the Department of Defense fights and operates, the federal budget document continued. Consistent with America’s “AI Action Plan,” the budget makes “historic investments” to aggressively scale its AI ecosystem and ensure broad adoption throughout the U.S. armed forces. The sought-after funding further includes the development and fielding of new AI capabilities, buildout of new American AI infrastructure and continued support for the GenAI.mil platform, according to the Trump administration. 

The Golden Dome proposed by President Trump to develop a defensive shied to protect the United States and possibly Canada from incoming missiles. The plan represents the most significant missile defense initiative in U.S. military history, according to Citi Research.

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Three Dividend-paying Defense Contractors to Buy: Weapons-Savvy Woods

Closely tracking the defense industry is Jim Woods, a former U.S. Army paratrooper and officer who now heads the Tactical Trader advisory service and the monthly Forecasts & Strategies investment newsletter. When a stock is in a sector like defense that’s outpacing the overall market, partly due to the wars in Ukraine and Iran, as well as the closure of the Strait of Hormuz, then it deserves tactical attention, wrote Woods, who specializes in such opportunities in his Tactical Trader advisory service. For instance, Woods is recommending a little-known oil stock that does not need to use tankers to traverse through the Strait of Hormuz. 

Stocks are at a sort of “wait-and-see” moment regarding the Iran war ceasefire and what that might look like in the days ahead, Woods wrote to his Forecasts & Strategies and Tactical Trader subscribers. 

“I hope things will settle and the market can get back to the bullish ways,” Woods wrote. “But this week, the move has been tentative, and profits are being taken…” 

There will be plenty of time to add new opportunities in the days, weeks and months to come, so be ready, Woods advised. 


Paul Dykewicz meets with Jim Woods, head of Tactical Trader.

Three Dividend-paying Defense Contractors to Buy: Golden Dome 

“In our preview work, we felt that primes were increasingly confident in incremental awards and suppliers were increasingly confident in their ability to win business alongside them,” Citi Research wrote in a recent research note. “The possibility of Golden Dome momentum is a well-known catalyst for many of the defense prime contractors.” 

Those prime contractors include Arlington, Virginia-based RTX Corp. (NYSE: RTX), formerly know as Raytheon, Melbourne, Florida-based L3 Harris (NYSE: LHX), which appears positioned for a principle role in the Golden Dome, and Seattle-based Boeing Co. (NYSE: BA), Citi Research recently wrote. Another is Bethesda, Maryland-based Lockheed Martin, but it reported first-quarter 2026 earnings on April 23 that fell short of analysts’ consensus estimates of adjusted earnings per share of $6.59, finishing at $6.44. With some defense analysts revising the latter company’s outlook in market performance from a buy, the other three prime defense contractors will receive our focus. 

Three Dividend-paying Defense Contractors to Buy: RTX

RTX is a traditional aerospace and defense company that has supported satellite and launch services, as well as surveillance operations. But President Trump earlier this year criticized the company for engaging in share repurchases, dividend payments and high executive pay instead of fulfilling its U.S. defense contracts on time. 

The hefty funding hike proposal for defense is needed to protect the United States during “troubled and dangerous times,” President Trump said. But he also wants production deadlines met without cost overruns. 

RTX is one of the stocks that gained attention early this year after the arrest of Venezuela’s dictator, who President Trump accused of supporting the shipment of cocaine to the United States and causing drug overdose deaths. The company also supports satellite and launch services, as well as surveillance operations. 

RTX reported a “stellar” fourth quarter, beating earnings and revenue expectations, and its free cash flow was $7.9 billion compared to $3.4 billion last year, commented Michelle Connell. The company’s current $268 billion backlog gave its management confidence to boost guidance for 2026, she added. 


Michelle Connell heads Portia Capital Management.

On April 21, RTX reported another stellar quarter, beating first-quarter 2026 earnings expectations by almost 17%, said Michelle Connell, who heads Portia Capital Management in Dallas. A large part of this outperformance stemmed from high demand for RTX’s air defense systems, she added. 

“RTX’S free cash flow was $1.3 billion for the first quarter, a 65% year-over-year increase,” Connell told me. “Due to this robust cash flow, RTX increased its dividend by 7.4% to a yield of 1.5%.” 

During the first-quarter 2026 call with analysts, RTX’s CEO reiterated the company’s strong performance and backlog. However, he also spoke of his concerns about tariffs, which resulted in $170 million charge for the first quarter, as well as supply constraints and geopolitical risk. 


Chart courtesy of www.stockcharts.com.

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Three Dividend-paying Defense Contractors to Buy: LHX

The U.S. government seldom has invested in American businesses, but the Trump administration has been willing to pursue selected direct investments that have potential to produce a profitable return for the U.S. taxpayers. As a seasoned business leader, President Trump has unique background among U.S. presidents. 

Citi Research issued a recent report stating its base case price target for L3 Harris Technologies Inc. LHX received a valuation from Citi Research that uses historical ranges in conjunction with trading relationships to include factors such as margins, returns, growth and earnings momentum. 

The company won a contract in December 2025 from the Space Development Agency (SDA) to build 18 infrared satellites for the Tranche 3 (T3) Tracking Layer. The contract, valued up to $843 million, includes ground software, operations and sustainment functions. 

But the company is not without significant risks from heavy dependence on U.S. government customers and spending priorities, Citi Research wrote. Those risks include unilateral contract actions, government shutdowns and shifts in defense budget allocations that could materially impact revenue and operations. But with drones in demand, L3 Harris could be carving out a good niche for the future. 


Chart courtesy of www.stockcharts.com.

Three Dividend-paying Defense Contractors to Buy: BA

Boeing received a buy rating and retained the investment firm’s price objective of $270 as the aerospace and defense company’s operational trajectory remains positive, wrote BofA Global Research. The company’s turnaround is “by no means complete” or the trajectory a linear path, but the investment firm took a positive view of Boeing’s progress and resilience against headwinds thus far. 

A key development is that Boeing’s operations are improving across its business segments, BofA wrote in a recent research note. Boeing Global Services remains the company’s most “reliable” earnings stream and continues to grow smoothly, the investment firm indicated. 

“We see Boeing Defense & Space (BDS) benefitting from the long-term munitions replenishment through PAC-3 seekers in addition to potential upside from the F-47, KC-46 and F-15EX as the program are well supported in the FY2027 President Budget Request (PBR),” BofA assessed. “Most important, Boeing Commercial Airplanes (BCA) continues to stabilize production across programs, and the path toward the next rate breaks is becoming clearer. We see the most upside for BCA particularly after 2028E as deliveries for aircraft ordered post-covid (with better pricing) are expected to surpass 30% of total deliveries.” 

At BCA, the 737MAX program has stabilized at rate 42 planes a month, BofA wrote. A first-quarter wiring issue did drag on the quarter with about 25 MAX jets impacted, as expected, but the aircraft are expected to be delivered in second quarter, the investment firm added. 

To add perspective, BofA wrote that the company still faces a significant challenge, but the “fire” is getting relatively smaller. Financially, BA’s cash burn improved in the first quarter of 2026 to $1,454 million, with BA maintaining its FY26 outlook of generating $1 billion to $3 billion. 


Chart courtesy of www.stockcharts.com.

Three Dividend-paying Defense Contractors to Buy: Geopolitical Risk

The current war in Iran actually stems from the 1979 Islamic Revolution, said Hugh Grossman, senior leader of the DayTrade SPY options trading room. 

“The central, state-sanctioned change followed the November 4, 1979, seizure of the U.S. Embassy in Tehran and the subsequent 444-day hostage crisis, symbolizing opposition to U.S. policies,” Grossman said. “In chanting ‘Death to America,’ perhaps President Jimmy Carter should have finished off the conflict at that time, but Americans, being the patient society we are, graciously kicked the problem down the road. Decades later, Iran has developed — ironically with the financial, military and technological help from America — the means to seriously threaten us.” 

President Trump had little choice but to end this “relentless threat,” not to mention the horrific slaughters the current regime did to its own people by killing tens of thousands of protestors opposing the government, Grossman commented. Geopolitical conflicts can have far-reaching effects on the stock market, he added. 

“Initially, the resilient market shrugged off the first attack on Tehran,” Grossman recalled. “Where we will see the effects will be in the increased price of oil as Iran escalates its threats to shipping through the Strait of Hormuz, which carries a fifth of the world’s oil supplies, but this I expect to be short-lived. Oil increases in price, creates inflation and a threat to interest rates, which is why SPDR S&P 500 (SPY) has dropped so dramatically in the days following the attack.” 

Grossman advised investors that he doubted we will see long-term devastating effects, since the economy is still fundamentally strong with consumers and businesses driving solid economic growth. What is also different this time, as opposed to prior tightening of oil supplies as seen in the 1973 oil embargo, is that the United States became a net energy exporter in 2001. 

Grossman and his partner Jon Johnson have an options trading success rate with the State Street SPDR S&P 500 ETF Trust NYSE: SPY) of more than 83%. With the market remaining volatile, Grossman recommended the DayTrade SPY options trading room as a good alternative or supplement to investing in stocks.

Sincerely,

Paul Dykewicz, Editor
DividendInvestor.com

About Paul Dykewicz:

Paul Dykewicz is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain“, with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.

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