The U.S. is looking to level up its anti-missile defense systems. Senators Dan Sullivan (R-Alaska) and Kevin Cramer (R-North Dakota) have introduced the IRON DOME Act, an initiative to strengthen America’s missile defense. This legislation aims to expand Alaska’s interceptors from 60 to 80, establish AEGIS Ashore sites on both coasts and allocate $4 billion to Patriot and THAAD missile system production.

TD Cowen analysts see this as a long-term catalyst for defense giants like RTX (RTX), Lockheed Martin (LMT), and Northrop Grumman (NOC). TD Cowen estimates the plan will require tens of billions, significantly bolstering existing programs. With the Missile Defense Agency fast-tracking industry engagement and fiscal 2026 funding on the horizon, this could drive a surge in missile defense and space-based tracking investments.

While this bill presents a major opportunity, fueling potential growth in missile defense contracts, and with President Donald Trump advocating for a U.S. Iron Dome, investors seeking high returns in an evolving defense landscape should grab these dividend-paying defense stocks with solid upside potential.

Defense Stock #1: RTX Corporation 

Founded in 1934 and headquartered in Arlington, Virginia, RTX Corporation (RTX) is a stalwart in aerospace and defense. Its divisions Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense, form the bedrock of its $167 billion business.

Over the past 52 weeks, RTX has surged impressively, returning 38% and edging past the broader S&P 500 Index’s ($SPX) 20.7% gains. This momentum continued into 2025 with an 8.7% rise on a YTD basis, hitting an all-time high of $132.43 on Jan. 28, driven by stellar quarterly earnings that surpassed Wall Street's expectations.

In a nod to its shareholders, RTX recently declared a dividend of $0.63 per share, payable to its shareholders on March 20. Currently, the company pays an annual dividend of $2.52, sporting a forward yield of 2.1%. For investors seeking both stability and long-term upside, RTX offers a compelling mix of dependable dividends, solid financials, and a valuation that supports its continued momentum in the defense industry.

Highlighting its financial prowess, on Jan. 28, RTX released its Q4 earnings results. Revenue rose 9% year over year to $21.6 billion, surpassing estimates, and its adjusted earnings surged 19% annually to $1.54 per share, beating the projections by 12.4%.

Operating cash flow amounted to $1.6 billion, while free cash flow came in at $492 million. The company had a backlog of $218 billion, including $125 billion in commercial and $93 billion in defense. Moreover, it returned $852 million of capital to shareowners.

Meanwhile, it clinched a $75.1 million contract from the Naval Sea Systems Command, fortifying its position in engineering and technical support for SM-2 and SM-6 programs.

Expanding its global footprint, RTX secured a $529 million contract to supply Patriot air and missile defense systems to the Netherlands. The comprehensive deal underscores RTX’s commitment to delivering cutting-edge technology, comprising radar, launchers, command stations, and support equipment, ensuring robust defense capabilities.

Looking ahead, analysts tracking RTX predict its earnings to climb steadily, forecasting a 6.6% annual rise to $6.11 per share for the fiscal year 2025, followed by a robust 12% surge to $6.84 per share in fiscal 2026.

Wall Street’s optimism has been growing on RTX, with the stock having a consensus “Moderate Buy” rating overall. Out of the 23 analysts offering recommendations, 11 suggest a “Strong Buy,” one has a "Moderate Buy," 10 play it safe with a "Hold," and one advises a "Strong Sell."

Amid bullish sentiment, RTX's mean price target of $139.48 reflects potential 12% upside, while the Street-high target of $159 suggests a possible 27% rally from the current level.

Defense Stock #2: Lockheed Martin 

Founded in 1912 and based in Bethesda, Maryland, Lockheed Martin (LMT) stands as the globe's foremost defense contractor. It caters not only to the U.S. government, but also to international clients and commercial entities, amassing a formidable market cap of $102 billion.

Lockheed Martin is a defense powerhouse, securing long-term government contracts that shield it from economic swings. With a strong order backlog and steady revenue, it remains a resilient investment amid market uncertainties.

Despite declining double digits from its 52-week high of $618.95, LMT stock edged up 1.8% over the past 52 weeks.

Lockheed Martin has built a reputation for rewarding shareholders, delivering uninterrupted dividends for nearly three decades and raising them for 22 consecutive years. On Jan. 28, it continued that streak, announcing a $3.30-per-share payout. With an annual dividend of $13.20 and a 3.1% yield, LMT offers both income and stability. Backing its shareholder-friendly stance, Lockheed repurchased $3.7 billion in stock in 2024 alone, reinforcing confidence in its long-term value.

Despite its dominance, LMT trades at 16.52 times forward earnings and 1.49 times sales, cheaper than some sector peers.

On Jan. 28, Lockheed Martin released mixed Q4 earnings results, which exceeded its earnings estimates. Despite a slight dip in year-over-year sales to $18.6 billion, the company’s adjusted EPS of $7.71 beat Wall Street’s projections by double digits. 

Looking forward, LMT’s outlook for 2025 has brightened, buoyed by improved operational efficiencies and a proactive de-risking strategy implemented in 2024. The company anticipates sales growth between 4% and 5%. Analysts echo this optimism, forecasting a 2.1% rise in earnings to $6.46 per share in the first quarter of 2025. Looking further ahead to the full year, they estimate EPS of $27.14, followed by a 9.5% surge to $29.73 in 2026.

Wall Street’s sentiment toward LMT remains bullish, with a consensus “Moderate Buy” rating overall. Among the 22 analysts covering the stock, 11 recommend a "Strong Buy," one suggests a “Moderate Buy,” nine analysts advise a "Hold," and the remaining one has a “Strong Sell” rating.

Amid bullish projections, LMT’s mean price target of $549.82 suggests potential upside of 26%, while the Street-high price target of $685 suggests the stock could rally as much as 58%.

Defense Stock #3: Northrop Grumman

Founded in 1939 and headquartered in Falls Church, Virginia, Northrop Grumman (NOC) has cemented its place as a powerhouse in global security. With a market cap of $65.8 billion, it delivers cutting-edge products, systems, and solutions across domains spanning undersea, outer space, and cyberspace, making it a formidable force in defense technology.

Over the past 52 weeks, NOC stock is down 7.3%.

With 21 consecutive years of increases, Northrop Grumman keeps rewarding patient investors. On Dec. 18, it paid a $2.06-per-share dividend, bringing its annual payout to $8.24 and a forward yield of 1.9%. 

Beyond dividends, its valuation presents an intriguing opportunity. Trading at 16.91 times forward earnings, NOC sits below both the sector median and its own historical average. Its price-to-sales ratio of 1.67x also trails its five-year average of 1.78x. For investors seeking a reliable income stream alongside an attractively priced defense giant, NOC could be a wise pick in today’s market.

On Jan. 30, Northrop Grumman unveiled its Q4 earnings, reporting revenue of $10.7 billion, slightly missing analyst estimates. Its adjusted EPS amounted to $6.39, a significant jump from a loss of $1.45 per share. Also, Northrop Grumman’s long-term prospects remain robust. It closed the year with a record backlog of approximately $91.5 billion and an impressive book-to-bill ratio of 1.23 times. These figures highlight strong future revenue visibility, driven by new competitive wins and follow-on awards, reinforcing its dominant position in the defense industry.

Looking forward, management projects 2025 earnings between $27.85 per share and $28.25 per share, with revenue expected to range between $42 billion and $42.5 billion. Moreover, the company plans to invest over $2.5 billion in research and development and capital expenditures while committing to return 100% of its FCF to investors.  

Analysts tracking NOC anticipate a 7.6% rise in EPS to $28.05 in 2025, followed by a 3.4% increase to $28.99 in 2026, signaling steady growth.

Wall Street’s sentiment remains upbeat, with a consensus “Moderate Buy” rating overall. Out of 19 analysts covering the NOC, nine suggest a “Strong Buy,” one recommends a “Moderate Buy,” eight advise a “Hold,” and the remaining one has a “Strong Sell” recommendation.

The stock’s mean price target of $550.35 suggests 27% upside potential. The Street-high estimate of $604 hints that the NOC could rally as much as 40%.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.