4 Defense Stocks Paying Dividends Backed by Pentagon Contracts

Defense primes collect their cash on signed, multiyear contracts with the Pentagon and allied governments, and that makes their dividends some of the most visible income streams in the market. Right now the order books behind four of the sector’s biggest dividend payers, Lockheed Martin (NYSE:LMT | LMT Price Prediction), General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC) and RTX (NYSE:RTX), sit at record or near-record levels, led by RTX’s $340 billion backlog. For income investors, that backlog is contracted cash flow waiting to be billed, and it supports every quarterly check covered below.

Lockheed Martin: The Group’s Top Yield Rides a Record Order Book

Lockheed Martin pays the fattest yield of the four at 2.47%, on a quarterly dividend of $3.45 per share, or $13.80 annualized. Shares recently traded at $546.84.

Dividend safety: The forward dividend equals roughly 51% of trailing EPS of $27.13. Cash coverage is stronger: second-quarter free cash flow hit $2.92 billion while the company paid $796 million in dividends. The second-quarter call’s full-year free cash flow guidance of $7 billion to $7.2 billion, likely replaced this week, compares with an annual dividend bill of about $3.2 billion at the current rate. The balance sheet is the thinner spot: cash stood at $3.79 billion, with shareholders’ equity of $8.77 billion against $53.68 billion of liabilities. The quarterly payout rose each year in the dividend history, from $1.15 in 2013 to $3.45 today.

How contracts fund it: Backlog reached a record $230.42 billion, including a seven-year, $35 billion Missile Defense Agency contract to quadruple interceptor production. As CFO Evan Scott put it, “This deep book of contracts will fuel our sales growth for years to come.”

Bull case: Lockheed trades at a forward multiple of 16 versus a trailing 20, so the market is pricing in earnings growth that the backlog already supports. Lockheed is expected to report quarterly earnings this week, and those results could update the dividend picture: recent raises have arrived with the year-end payment, most recently the move to $3.45 starting with the December 1, 2025 ex-dividend date.

Risk: Fixed-price programs can bite. Two major classified programs required adjustments in the fourth quarter of 2024 and the second quarter of 2025, and management admits both remain aggressive and technically demanding.

General Dynamics: Submarines and Gulfstreams Keep the Raises Coming

General Dynamics yields 1.8% on a quarterly dividend of $1.59, or $6.36 annualized, with shares near $343.88. The next check pays November 13, 2026.

Dividend safety: The forward payout equals about 39% of trailing EPS of $16.39. First-half free cash flow reached $3.6 billion, while dividends paid over the same stretch totaled $834 million. General Dynamics has the strongest balance sheet in this group: shareholders’ equity of $26.83 billion against $33.34 billion of liabilities, cash of $4.33 billion, and net debt of $3.2 billion, down $1.2 billion from the prior quarter after repaying $500 million of notes. The quarterly dividend rose every year in the record, from $0.76 in 2016 to $1.59 now.

How contracts fund it: Backlog hit a record $136.5 billion, and total estimated contract value including options and IDIQ awards reached $186.9 billion. Book-to-bill of 1.4x means new orders are exceeding revenue, with Columbia-class and Virginia-class submarine work driving Marine Systems growth of 10.4%.

Bull case: Shipbuilding is a decades-long revenue stream, and President Danny Deep called Marine Systems “the segment, given its backlog and improving productivity, where we can accelerate value for our shareholders.” Add a Gulfstream business with an Aerospace book-to-bill of 1.5x, and the dividend has two drivers.

Risk: The second-quarter call highlighted a lighter second-half cash outlook: an approximately $500 million pension contribution, more than $500 million in cash taxes and higher capital spending.

Northrop Grumman: The Most Room to Keep Raising

Northrop Grumman yields 1.81% on a quarterly dividend of $2.47, or $9.88 annualized. Shares sit at $538.23, down 9.1% over the past year and below the 200-day average of $594.03.

Dividend safety: This is the most conservative payout in the group, at about 32% of trailing EPS of $30.90. Adjusted free cash flow guidance of $3.1 billion to $3.5 billion compares with an annual dividend cost near $1.4 billion, and management projects $3.3 billion to $3.7 billion for 2027. Cash totaled $3.74 billion, with equity of $18.68 billion and liabilities of $33.81 billion. The quarterly dividend has risen every year since $1.00 in 2017, most recently from $2.31 to $2.47, with no reductions over the multi-year record.

How contracts fund it: Backlog set a record at $109.6 billion, up 15% from year-end 2025, on $16.4 billion of third-quarter net awards. CEO Kathy Warden said about 35% of backlog should burn down over the next 12 months and another 55% over the following 24, a multi-year schedule of contracted revenue.

Bull case: B-21, Sentinel and munitions production give Northrop franchise programs that run into the 2030s, and a low payout leaves ample room for raises as that revenue converts to cash. A trailing multiple of 17 is the lowest of the four.

Risk: Fixed-price development work carries cost-growth exposure. On the B-21, Warden noted, “It is not without risk, because we still have a ways to go in production of our remaining LRIP units.”

RTX: The Biggest Backlog Behind a Fresh Streak of Raises

RTX yields 1.43% on a quarterly dividend of $0.73, or $2.92 annualized, with shares at $190.02.

Dividend safety: The forward dividend equals about 52% of GAAP trailing EPS of $5.63, but only about 38% of adjusted EPS guidance, which bottoms at $7.65. Free cash flow guidance, raised to $9.0 billion to $9.2 billion, covers an annual dividend cost near $3.9 billion with plenty of room. Cash stood at $9.17 billion, with equity of $69.25 billion against $105.6 billion of liabilities. After the Raytheon merger, the quarterly payout dropped from $0.735 to $0.475 in 2020, and RTX has raised it every year since.

How contracts fund it: The record $340 billion backlog breaks down into $164 billion defense and $176 billion commercial. Third-quarter wins included roughly $23 billion for Tomahawk and over $14 billion for AMRAAM, part of converted framework agreements worth about $70 billion that management says provide “almost a decade of demand visibility.”

Bull case: CEO Chris Calio said the business can generate “90% to 100% of free cash flow to adjusted net income,” and the company raised full-year guidance for the third time. Commercial aftermarket revenue adds a second cash stream that defense-only peers lack.

Risk: The Pratt & Whitney powder-metal issue on GTF drivers remains a drag that investors should keep tracking against the cash recovery management expects from shop visits.

Four Paychecks Funded by Government Contracts

Lockheed Martin offers the highest yield, General Dynamics the strongest balance sheet, Northrop Grumman the lowest payout ratio, and RTX the largest backlog. All four cover their dividends with free cash flow tied to multiyear government contracts and have raised payouts every year in their recent records. For income investors, that combination of contracted revenue and growing checks is the strongest case defense stocks can make.

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