LHX vs. NOC: Which Defense Dividend Will Actually Protect Your Retirement?

Should a retirement-focused investor own L3Harris Technologies (NYSE:LHX | LHX Price Prediction) or Northrop Grumman (NYSE:NOC) right now? Both defense contractors posted record backlogs this summer and raised 2026 guidance. Both stocks have still dropped hard: L3Harris is down 19.4% year to date and Northrop is down 15.91%. Their yields are almost the same, so the choice turns on how safe each payout is and how much you pay for it.

Income Today: Northrop Grumman Raises Faster

L3Harris pays $1.25 a quarter, or $5 a year going forward. At $233.71, that works out to a yield of about 2.14%. Northrop pays $2.47 a quarter, or $9.88 a year, which is about 2.09% at $473.63.

Dividend growth breaks the tie. Northrop’s quarterly payout rose from $1.57 in 2021 to $2.47, a gain of about 57%, and its latest raise was 6.9%. Over that period, L3Harris went from $1.02 to $1.25, up about 23%, and its latest raise was 4.2%. L3Harris does have the longer recorded run. Its CFO, Ken Sharp, said “We’re in 24 years of dividend growth, so making sure that we get the dividend aristocrat I think is important to us” (a dividend aristocrat is an S&P 500 company with at least 25 straight years of increases). Winner: Northrop, because its raises build faster.

Payout Durability: L3Harris Carries More Cushion

L3Harris’s dividend uses roughly 31% of its free cash flow guidance of about $3.0B. Free cash flow is the cash left over after capital spending. Second-quarter free cash flow rose 37% to $771M, and management projects about $4 billion of cash on hand. Northrop’s dividend uses roughly 43% of the midpoint of its $3.1B–$3.5B adjusted free cash flow guidance.

Northrop has more contract visibility. Its $104.69B backlog represents about 2.4 years of trailing revenue, compared with 1.8 years for L3Harris’s $42.0B. That backlog is expensive to deliver, though. Northrop plans $1.85 billion of capital spending in 2026 and about 4.5% of sales in 2027 and 2028 to ramp up B-21 bomber production.

The B-21 is a fixed-price contract that has already produced cost overruns. In the second quarter, Northrop also took cost-estimate charges of $68M and $91M on two programs. CEO Kathy Warden said: “We are not done with the qualification. Until we are, there is risk.” Winner: L3Harris.

Valuation: L3Harris Delivers More Growth per Dollar

Both stocks trade about 38% below their 52-week highs (37.6% for L3Harris, 38.3% for Northrop). L3Harris sits almost exactly at its 52-week low of $233.01, well below its 200-day average of $310.17. Northrop’s 52-week low is $470.06.

Northrop looks cheaper at first glance: 15 times trailing earnings against 24 for L3Harris. On forward earnings the gap almost goes away: 18 for L3Harris and 17 for Northrop. Northrop’s forward multiple sits above its trailing one, which means earnings are projects to decline. Its quarterly earnings fell 5.8% year over year, while L3Harris’s rose 28.3%. The PEG ratio, which divides the P/E by expected growth, tells the same story: 1.19 for L3Harris against 3.407 for Northrop. Winner: L3Harris.

Verdict: L3Harris Offers the Stronger Retirement Income Profile

For a retirement income investor, L3Harris wins. You get a slightly higher yield, a payout that uses less than a third of free cash flow, a large cash cushion and faster earnings growth, all at a share price near its 52-week low. Northrop’s faster raises depend on a capital-heavy bomber ramp and programs still in testing. That adds execution risk to the income stream.

One thing worth watching: Warden projects the Air Force to decide on speeding up B-21 production by year end. If that decision comes through and the Defense Systems cost overruns stop, Northrop’s faster dividend growth strengthens its case for investors with a longer horizon who can wait for it to build.

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