This article looks at the 7 Best Defense Dividend Stocks to Buy.
Military expenditure has soared this year, amid the ongoing conflicts in Ukraine and Gaza. The prospect of a war between the United States and Venezuela is also luring investors towards the sector.
The NYSE Arca Defense Index is up 41.96% year-to-date, as of the close of business on December 22, comfortably outpacing the S&P 500 Index, which has gained 17.21% during the period.
While traditional defense contractors have continued their gains, several small and mid-sized companies in the sector have also emerged as standout performers, given their expertise in affordable, next-generation military technology like AI-powered drones.
The trend has resulted in an increase in traditional contractors growing their capabilities to adapt to modern warfare through mergers and acquisitions of smaller firms in areas like artificial intelligence, communications, and cybersecurity.
Looking ahead to 2026, Morgan Stanley recently shared a bullish outlook for aerospace and defense stocks, amid rising demand that continues to beat supply.
The firm’s analyst Kristine Liwag believes that defense stocks in particular offer ‘good value’ since they are currently not reflecting the growth in the U.S. defense budget.
With that said, let’s now see some of the best dividend stocks to invest in from the defense sector.
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Methodology
For this article, we gathered a pool of defense stocks that have been paying dividends for at least 10 consecutive years, as of the close of business on December 22. We then shortlisted the top 7 companies that had the highest number of hedge fund investors having a stake in them, based on Insider Monkey’s database of prominent hedge funds as of Q3 2025. Finally, we ranked them in ascending order based on the number of hedge funds holding positions.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
7 Best Defense Dividend Stocks to Buy:
7. Textron Inc. (NYSE:TXT)
Number of Hedge Fund Holders: 36
Textron Inc. (NYSE:TXT) is among the 7 Best Defense Dividend Stocks to Buy. On December 11, Citigroup initiated coverage of the stock with a Neutral rating and announced a share price target of $91.
The global investment bank recently launched coverage on aerospace and defense stocks, while noting several ‘megatrends’ in the sector, which Citi believes could help at least one company reach the $1 trillion mark in market capitalization over the coming years.
As of the close of business on December 22, Wall Street analysts have a consensus Hold rating on the stock, with a one-year average share price target of $89.14, representing a slight downside potential of 2%.
Textron Inc. (NYSE:TXT) has been a consistent dividend payer for well over three decades, according to records on the company’s website. On October 22, it declared a quarterly dividend of $0.02 per common stock, which is scheduled to be paid on January 1, 2026.
In other news, on December 17, the company announced it had sold a TSUNAMI autonomous vessel to the Naval Information Warfare Center Pacific to support the naval needs of the United States, Australia, and the United Kingdom.
This follows the sale of a 24-foot TSUNAMI vessel to the Naval Surface Warfare Center Dahlgren Division back in May this year.
Textron Inc. (NYSE:TXT) manufactures products for consumers across several industries, through its six business segments: Bell, Textron Aviation, Textron eAviation, Textron Systems, Industrial, and Finance.
6. Huntington Ingalls Industries, Inc. (NYSE:HII)
Number of Hedge Fund Holders: 39
Huntington Ingalls Industries, Inc. (NYSE:HII) is among the 7 Best Defense Dividend Stocks to Buy. On December 12, Citigroup initiated coverage on the stock with a Buy rating and announced a price target of $376.
As of the close of business on December 22, Wall Street analysts have a consensus Moderate Buy rating on the stock, with a one-year average share price target of $331.33, representing a downside of 6%.
Huntington Ingalls Industries, Inc. (NYSE:HII) is considered to be a major dividend payer in the defense industry, with the shipbuilder having consistently increased its payout every year since 2013, according to information available on the company’s website. It has a dividend yield of 1.56% as of December 22.
In October, the defense contractor announced to increase its quarterly cash dividend by three cents to $1.38 per share. The amount was paid to shareholders on December 12, 2025.
In other news, on December 19, the company was chosen by the U.S. Navy to design and manufacture a new class of small surface combatant (SSC) ship. The stock market responded positively to the news, with shares surging 5% on Monday to close at $353.52.
Huntington Ingalls Industries, Inc. (NYSE:HII) is an American defense company with expertise in shipbuilding.
5. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 58
General Dynamics Corporation (NYSE:GD) is among the 7 Best Defense Dividend Stocks to Buy, with a dividend yield of 1.74% as of December 22.
On December 19, JP Morgan lifted its price target on the stock to $385 from $380, while maintaining an Overweight rating on the shares. The revision came as part of the firm’s outlook for the aerospace and defense industry heading into 2026.
In a research note to investors, the firm said the outlook for next year is generally positive. However, the defense sector is expected to be ‘more nuanced’ compared to aerospace, where JP Morgan anticipates robust demand to be backed up by supply growth.
The update follows Morgan Stanley’s adjustment on General Dynamics Corporation (NYSE:GD) on December 16, when the financial services firm upgraded the stock to Overweight from Equal Weight, and lifted its share price target from $385 to $408.
As of the close of business on December 22, Wall Street analysts have a consensus Moderate Buy rating on the stock, with a one-year average share price target of $387, representing an upside of 14%.
General Dynamics Corporation (NYSE:GD) is a leading global aerospace and defense company, operating through its Aerospace, Marine Systems, Combat Systems, and Technologies segments.
GD is a dividend aristocrat due to its consistent dividend growth for over three decades. On December 3, the company declared a quarterly dividend of $1.50 per share.
4. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 59
Northrop Grumman Corporation (NYSE:NOC) is among the 7 Best Defense Dividend Stocks to Buy, with a dividend yield of 1.58% as of the close of business on December 22.
On December 16, Morgan Stanley’s Kristine Liwag cut the firm’s price target on the stock to $714 from $720, while maintaining an Overweight rating on the shares. In a research note to investors, the analyst said the firm was bullish on the aerospace and defense sector heading into 2026, with demand continuously rising faster than supply.
Morgan Stanley’s adjustment follows Alembic Global analyst Peter Skibitski’s update a day earlier, when it upgraded Northrop Grumman Corporation (NYSE:NOC)’s rating to Overweight from Neutral with a share price target of $662.
Moreover, on December 12, Citigroup initiated coverage on the stock with a Buy rating and announced a share price target of $654.
As of the close of business on December 22, Wall Street analysts have a consensus Strong Buy rating on the stock, with a one-year average share price target of $685.31, representing an upside of 19%.
Northrop Grumman Corporation (NYSE:NOC) is one of the largest defense contractors in the world. It is engaged in the design, development, integration, and maintenance of advanced systems across aeronautics, space, defense electronics, and mission solutions.
3. L3Harris Technologies, Inc. (NYSE:LHX)
Number of Hedge Fund Holders: 59
L3Harris Technologies, Inc. (NYSE:LHX) is among the 7 Best Defense Dividend Stocks to Buy. On December 19, the company announced it had secured a $843 million contract from the Space Development Agency (SDA) for tracking layer satellites.
The award will include developing 18 infrared satellites for the Tranche 3 (T3) Tracking Layer, and will feature ground assistance, sustainment, and operational functions. This is in addition to the previous orders for 34 satellites in development for T1 and T2.
The satellites will be part of the SDA Proliferated Warfighter Space Architecture (PWSA) constellation to defend the United States from hypersonic and ballistic missiles.
Christopher Kubasik, Chairman and CEO at L3Harris Technologies, Inc. (NYSE:LHX), stated the following on the contract award:
“L3Harris is proud to support SDA in its mission to deliver a next generation, layered defense architecture that can track threats in real time. Defeating the hypersonic missile threat begins in space, and our Tranche 3 satellites will advance our proven, on-orbit tracking and targeting capability needed to protect our homeland.”
In other news, Morgan Stanley on December 16 upgraded L3Harris Technologies, Inc. (NYSE:LHX)’s rating to Overweight from Equal Weight and hiked its price target on the stock to $367 from $350. The firm pointed out opportunities from the Golden Dome project among the potential catalysts for the company in 2026.
As of the close of business on December 22, Wall Street analysts have a Moderate Buy rating on the stock, with a one-year average share price target of $334.00, representing an upside of 13%.
L3Harris Technologies, Inc. (NYSE:LHX) provides end-to-end technology solutions connecting the air, land, space, sea, and cyber domains in national security.
2. Curtiss-Wright Corporation (NYSE:CW)
Number of Hedge Fund Holders: 62
Curtiss-Wright Corporation (NYSE:CW) is among the 7 Best Defense Dividend Stocks to Buy. On December 16, Stifel cut its price target on the stock to $584 from $587, while maintaining a Hold rating on the shares.
In a research note to investors, the analyst said that despite flat or lower volumes in 2025, diversified industrial companies registered growth by passing on the tariff-related price increases to customers, which reflected their strong pricing power.
According to TipRanks, Stifel expects low levels of inventory destocking and carryover pricing to drive volume growth in 2026, which should result in a top-line growth of around mid single-digit.
The firm also said that Curtiss-Wright Corporation (NYSE:CW) was well placed to outpace the markets by delivering new products in the stable to growing market segments. Moreover, Stifel highlighted nuclear opportunities that could significantly drive growth for the company ahead.
On the same day, Morgan Stanley lifted its price target on the stock to $660 from $645, while keeping an Overweight rating on the shares. The adjustment came as part of the firm’s positive outlook for the aerospace and defense industry heading into 2026.
Overall, Wall Street analysts have a Moderate Buy rating on the stock, with a one-year average share price target of $605.60, representing an upside of 9%, as of the close of business on December 22.
Curtiss-Wright Corporation (NYSE:CW) provides engineered products, solutions and services for the aerospace and defense markets.
1. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 68
Lockheed Martin Corporation (NYSE:LMT) is among the 7 Best Defense Dividend Stocks to Buy. On December 19, JP Morgan downgraded the stock’s rating to Neutral from Overweight, citing concerns about the defense contractor’s long-term cash flow estimates.
Analyst Seth Seifman told investors in a research note that pension-related outflows expected next year were likely to limit cash flow growth, making the anticipation of an 8% growth appear optimistic.
The firm said it had a bullish outlook on stocks in the aerospace and defense sector heading into 2026 and lifted its price target on Lockheed Martin Corporation (NYSE:LMT) to $515 from $465.
However, JP Morgan believes investors should be selective when it comes to picking defense stocks, where returns could face variations from budgeting risks, program executions, and political factors.
This follows Morgan Stanley’s adjustment on Lockheed Martin Corporation (NYSE:LMT) on December 16, when the firm downgraded the stock’s rating to Equal Weight from Overweight, and slashed its price target to $543 from $630 as part of its broader outlook for the sector in 2026.
As of the close of business on December 22, Wall Street analysts have a consensus Hold rating for the stock, with a one-year average share price target of $524.93, representing an upside of 9%.
Lockheed Martin Corporation (NYSE:LMT) is one of the largest defense contractors in the world. It is famed for manufacturing notable fighter jets, including the F-35.
While we acknowledge the potential of LMT to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than LMT and that has 100x upside potential, check out our report about the cheapest AI stock.
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