3 Top Defense Stocks for Dividend Growth Investors
In the last few years, two major conflicts around the world have broken out. Russia invaded Ukraine and Iran-backed Hamas invaded Israel, causing the latter country to respond by attacking Hamas in Gaza. Moreover, in the wake of the Hamas-Israel war, Iranian-backed forces have attacked members of the American military, and U.S. allies in the Gulf area have become more worried about potential Iranian aggression. What’s more, many are concerned about believe that China’s expansionist ambitions, and that they will attack Taiwan sooner rather than later. Because of all these developments, the U.S. and its allies in Europe, the Middle East and Asia will likely ramp up their defense spending going forward. For investors who want to buy defense stocks with dividend growth amid this trend, here are three high-quality names to consider.
Elbit Systems (ESLT)
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In addition to fighting Hamas, Israel has also clashed with another Iranian proxy, Hezbollah, in recent weeks, and a third Iran-backed militia, the Houthis in Yemen, have fired missiles at the Jewish State. What’s more, Iran itself has threatened multiple times to attack Israel since the hostilities began.
Amid all of these conflicts and threats, Israel is likely to greatly increase its defense spending going forward. Israel-based Elbit Systems (NASDAQ:ESLT), which makes many low-tech and high-tech defense products, is likely to be a big beneficiary of the latter trend. Elbit also has a high number of customers in Europe, where a multitude of nations are ramping up their spending on weapons in the wake of the Russia-Ukraine War.
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Given these points, it’s not at all surprising that analysts, on average, expect ESLT’s earnings per share to jump to $7.81 in 2024 from $6.03 in 2022.
Since the end of 2015, ESLT has raised its dividend by 35% to 50 cents per share. Given the company’s likely growth in the next few years, I expect its payout to increase much more rapidly going forward. As a result, I view it as one of the best defense stocks with dividend growth.
Huntington Ingalls (HII)
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Huntington Ingalls (NYSE:HII) specializes in building military ships. Amid the Hamas-Israel war, the U.S. sent two American aircraft carrier strike groups to the eastern Mediterranean and a third was on its way to the area as of October 28. Additionally, America ordered two ships of the Bataan Amphibious Ready Group to the Red Sea.
The moves, reportedly taken in an effort to prevent Iran and its proxies from escalating the conflict further, show that the U.S. views ships as a primary means of responding to conflicts overseas. As a result, America is likely to buy many ships from Huntington Ingalls in the coming years.
In another sign that the U.S. is likely to look to buy many more ships in the coming years, Florida Governor Ron DeSantis, a leading Republican presidential contender, recently proposed increasing America’s fleet to 355 ships by early 2029 and 385 by early 2033. The Navy says that it now has over 280 ships.
Analysts, on average, expect HII’s EPS to climb to $16.56 next year, up from $14.44 in 2022.
The company’s dividend has jumped from $1.03 in late 2019 to $1.30 now.
Booz Allen Hamilton (BAH)
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Booz Allen (NYSE:BAH) carries out many IT tasks for the federal government and America’s military.
For example, it recently received a $151 million R&D deal from the U.S. Army and a $630 million contract for its services from the Space Force.
Impressively, Bank of America upgraded BAH to “buy” from “neutral” on October 3, citing the positive catalyst that the company is likely to receive from Washington integration of artificial intelligence into its IT systems.
BAH has hiked its dividend to 47 cents.
On the date of publication, Larry Ramer held a long position in ESLT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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