President Joe Biden signed the fiscal year 2022 defense budget bill in mid-March, appropriating $728.5 billion to the country’s military. Among the $32.5 billion year-over-year increase in defense spending, the budget authorizes big increases to the Army’s budget for network technology and air and missile defense.

Another $40 billion in funds to assist Ukraine in its fight against the Russian invasion is expected to be approved by the U.S. Senate Thursday before going to the president for signature. CNN has a good breakdown of how the funds will be used. About half will be used to restock U.S. inventory to replace equipment already sent to the beleaguered Ukrainians and to buy more weapons from contractors to send to Ukraine.

Judging by investors’ reaction to the budget bill and the additional funding to support Ukraine, the increase in U.S. defense spending had been priced in already. Since the Russian invasion began on February 24, aerospace and defense stocks actually have traded lower, after an initial jump that pushed the sector’s stocks up more than 10% for the year to date.

We screened defense contractors not just for their dividend yields, which are modest compared to yields from other sectors like maritime shipping or mortgage REITs. Using their payout ratio (dividends paid as a proportion of net income), we found five defense firms that payout at least 40% of their earnings in dividends.

Raytheon Technologies

Raytheon Technologies Corp. (NYSE: RTX) paid a dividend yield of 2.18% for the past 12 months. The company reported net income of $4.2 billion and paid out dividends totaling $3 billion, for a payout ratio of 71.44%. For the next 12 months, the payout ratio is forecast to increase to 2.38%. Raytheon’s total return for the past year was 11.7%.

According to a report from Defense News, 65% of Raytheon’s total revenue in 2020 of $65 billion was attributable to defense ($42 billion). That is the lowest defense percentage among the companies on our list.

Of 18 analysts covering Raytheon, 13 have a Buy or Strong Buy rating, along with an average price target of $113.60, implying a share price gain of 22.6%. The stock’s 52-week trading range is $79.00 to $106.02.

Lockheed Martin

Over the past 12 months, Lockheed Martin Corp. (NYSE: LMT) paid a dividend yield of 2.56%. The company reported net income for the period of $6.21 billion and paid out $2.97 billion in dividends, for a payout ratio of 47.79%. For the next 12 months, the dividend yield is forecast to rise to 2.63%. Lockheed’s total return for the past year was 15.47%.

In 2020, Lockheed posted total revenue of $65.4 billion, of which 96% ($62.56 billion) was attributable to defense. That is the highest percentage of defense revenue among the companies in our list.

Analysts are much cooler toward Lockheed. Just five of 16 awarded Buy or Strong Buy ratings to the stock. The rest rate the stock at Hold. At an average price target of $482.40, the implied upside on the stock is 11.1%. Lockheed’s 52-week range is $324.23 to $479.99.

The dividend yield at L3Harris Technologies Inc. (NYSE: LHX) was 1.8% for the past 12 months. The company reported net income of $1.85 billion and paid out dividends totaling $826 million, for a payout ratio of 44.58%. For the next 12 months, the payout ratio is forecast to increase to 1.94%. Raytheon’s total return for the past year was 12.76%.

L3Harris posted total revenue of $18.19 billion in 2020, of which 82% ($14.94 billion) was attributable to defense. The company’s defense revenue grew by just 2% year over year in 2020.

Analysts are bullish on the stock, with 13 of 19 having a Buy or Strong Buy rating and another five rating the stock at Hold. At an average price target of $273.75, the implied upside over the next 12 months is 15%. The stock’s 52-week trading range is $200.71 to $279.71.

BAE Systems

U.K.-based BAE Systems is traded over the counter (BAESY) in the United States and in London (BA). The company paid a dividend yield of 3.57% over the past year. Its net income totaled $2.38 billion over the past 12 months, and the company paid out $1.05 billion in dividends for a payout ratio of 44.2%. For the next 112 months, the dividend yield is expected to rise to 4.32%. The total return for the past 12 months is 50.57%.

The company reported $24.74 billion in 2020 revenue, 95% ($23.5 billion) of which was attributable to its defense business, trailing only Lockheed in its dependence on defense spending.

Of 18 analysts covering the stock, half have a Hold rating and the other half have a Buy or Strong Buy rating. At an average price target of £7.92 (about $9.80), the implied share price gain over the next 12 months is 4.82%. BAE’s 52-week range is £5.11 to £7.82 (about $6.34 to $9.70).

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General Dynamics

General Dynamics Corp. (NYSE: GD) paid a dividend yield of 2.12% over the past 12 months. The company reported net income for the period of $3.28 billion and paid out $1.33 billion in dividends, for a payout ratio of 40.56%. For the next 12 months, the dividend yield is forecast to rise to 2.32%. The company’s total return for the past year was 20.94%.

The company reported $37.9 billion in 2020 revenue, 79% ($29.8 billion) of which was attributable to its defense business. General Dynamics also reported an increase of just 1% year over year in its defense revenue for 2020. That is the lowest increase among these five stocks.

Of 16 analysts covering the company, 11 have a Buy or Strong Buy rating and four more rate the shares at Hold. At an average price target of $266.07, the implied 12-month gain to the share price is 17.74%. General Dynamics’ 52-week range is $182.66 to $254.99.

Note that General Dynamics is the only defense contractor among the Dividend Aristocrats. The company has increased its dividend for 31 consecutive years.

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