Nearing Retirement? The 3 Best Defense Dividend Stocks to Buy Now

Investing during retirement is different than investing for retirement because there is a far greater need for stability, preserving capital, and generating income. That doesn't mean you need to put all your money in Treasuries, but you really can't bet on risky ventures anymore because you don't have the time to make up for any mistakes if they fall apart.

That's why I think the defense industry is an excellent place to look for investments as you near retirement. You're getting solid businesses offering generally stable growth that also tend to throw off equally dependable income streams for investors. These three defense stocks are great places to start.

1. Raytheon Technologies

Raytheon Technologies (NYSE: RTX) is the second-largest defense contractor in the U.S. and makes the Patriot surface-to-air missile (SAM) system, along with Tomahawk cruise missiles. It's also developing next-gen hypersonic air-to-air missiles.

Yet Raytheon is more than a supplier of military material, having a broad portfolio of commercial systems, including aircraft control systems for commercial airlines, radar, navigation and landing systems, aircraft engines, and various weapons and munitions. It also outfits astronauts with space suits and sensors.

Raytheon has seen a large uptake of defense weapons as a result of Russia's invasion of Ukraine -- particularly Javelin anti-tank missiles, which have been credited with helping thwart Russia's advance in Ukraine. In fact, the U.S. has sent so many Javelin and Stinger missiles (the Stinger is also made by Raytheon) that it has nearly depleted its own stockpile and will likely need to replenish it very soon.

Raytheon has also been aggressively hiking its dividend (which yields 2.2% at recent prices) and will also soon cross the Dividend Aristocrat threshold. It's one of the reasons I see Raytheon Technologies as the top defense stock to buy today.

2. Lockheed Martin

The arguments in favor of Raytheon hold equally true for Lockheed Martin (NYSE: LMT), the country's largest military contractor, which derives virtually all of its revenue from the government. While that could subject it to the whims of Congress, defense budgets usually tend to grow, so it's often only the rate of growth that fluctuates.

President Biden proposed an $813 billion defense budget in March, a 4% increase over last year, though rampant inflation will mean it will result in a smaller real increase in spending. Because of Lockheed's dominant position in supplying military aircraft, missile systems, helicopters, and satellites for the defense of the U.S. and its allies, it will receive a good portion of those dollars. Revenue has grown from just under $50 billion in 2017 to over $67 billion last year, a 7.6% compound annual growth rate.

Like Raytheon, has boosted business for Lockheed as Russia's aggression has convinced European allies they need to boost their own defense capabilities, and Lockheed reported it received renewed demand for missile defense systems and the interceptor missiles for the Patriot system (Raytheon and Lockheed jointly make the system, along with Boeing).

CEO Jim Taiclet also says the F-35 combat aircraft has also "become a more important platform," particularly in Germany, not to mention the F-16 fighter jets, a more affordable option for Lockheed's international customers.

Lockheed's dividend yields 2.5% at recent prices, and the company has dependably raised that dividend for 19 consecutive years, putting it on track to become a Dividend Aristocrat. It all makes for a stalwart addition to a retirement portfolio.

3. Smith & Wesson Brands

It's not quite on the scale of Lockheed or Raytheon, but firearms manufacturer Smith & Wesson Brands (NASDAQ: SWBI) deserves your consideration too. Although its stock is down some 60% from its all-time high hit back in September, the iconic gunmaker also has a lot of long-term growth potential.

Recent tragedies make buying the country's largest gunmaker a more controversial option, and there's renewed momentum for strict gun control measures after the school shooting in Uvalde, Texas. But ArmaLite-style (or AR) rifles, which garner much of the press coverage in the gun control debate, aren't Smith & Wesson's primary focus. Long guns, both rifles and shotguns, accounted for less than 25% of the gunmaker's revenue last year. Instead, Smith & Wesson is the country's leading maker of handguns, and they represent the other three-quarters of its annual revenue.

Over the past two years, millions of individuals have felt the need to protect themselves, their families, and their property, and since the start of the pandemic, over 13 million Americans bought their first gun, according to the National Shooting Sports Foundation. FBI criminal background checks on potential gun buyers are down from the all-time records hit in 2020 and 2021, but they remain well above pre-pandemic levels and will continue to grow.

Smith & Wesson is new to the dividend scene, initiating a payout a little over a year ago that it's already increased once and which currently yields 2% annually. With a historical record of achievement since its founding 170 years ago, steady growth, and a new spirit of returning value to shareholders through dividends and stock buybacks, Smith & Wesson Brands is a stock that even retirees can set their sights on.

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Rich Duprey has positions in Smith & Wesson Brands, Inc. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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