Want Decades of Passive Income? 2 Stocks to Buy Right Now | The Motley Fool (2024)

Unfortunately, the ongoing war in Ukraine and rising tensions in the Middle East after last year's terror attack on Israel are sad reminders of the brutality of war. America's influence in the world's political landscape tends to pull the country into these situations.

It can be hard to get past the humanitarian consequences of war, and investing in the companies that develop and sell the weapons and technology used to protect America and its interests isn't for everyone.

But those looking for durable, blue-chip defense stocks have options. Here are two prime examples: Stocks are poised to pay dividends for decades and are reasonably valued today.

Diverse offerings are competitive advantages for these two defense stocks

Northrop Grumman (NOC -0.26%) and Lockheed Martin (LMT -0.52%) stand out for their diverse product portfolios that touch land, air, sea, and space, brimming with products crucial to America's offensive and defensive capabilities.

Northrop Grumman operates four business units: Aeronautics, Defense, Mission, and Space. While the stealth bomber is its most recognizable product, it also builds many others, including unmanned vehicles (drones), space launch vehicles, offensive and defensive cyber systems, missile defense systems and interceptors, and more.

Lockheed Martin also operates four distinct business segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. It builds some of America's most iconic military equipment, including Black Hawk helicopters, the F-35 Lightning fighter jet, Javelin missiles, naval weapons systems, antiballistic missile defense systems, and more.

Both companies primarily serve the U.S. military, which continues to spend more over time. Sure, the U.S. Defense budget is occasionally scrutinized and even cut sometimes. But as you can see, military spending eventually grows, and so do Northrop Grumman and Lockheed Martin:

US Government Defense Spending with Forecast data by YCharts

Dividends you can count on

Investors can learn about a company based on its ability to raise its dividend consistently, especially defense companies like these two. Think about how much they must spend on research and development to design and engineer the world's most advanced defensive and offensive equipment. Plus, it's not like this stuff is cheap or easy to manufacture. If that wasn't hard enough, these companies also pay dividends, a cash expense, and increase it yearly!

In other words, Northrop Grumman and Lockheed Martin don't have it easy. It takes top-notch leadership to develop such advanced products, grow the business profitably, and have money left to pay a growing dividend.

But that's exactly what both companies have done. Northrop Grumman has raised its dividend for 21 consecutive years, while Lockheed Martin has raised its dividend for 22 straight years. That means increasing the dividend through the financial crisis in 2008-2009 and the COVID-19 pandemic. Additionally, both companies offer an excellent combination of yield and growth. Northrop Grumman's starting yield is 1.7% today, with a 10-year annualized growth rate of 11.9%. Meanwhile, Lockheed Martin's starting yield is 2.3%, with a 10-year annualized growth rate of 9.8%.

That dividend growth easily outpaces inflation, and both companies still have plenty of breathing room. Their respective dividend payout ratios are roughly half their earnings:

NOC Payout Ratio data by YCharts

Lastly, both companies have some flagship military projects that should help ensure growth that can fund dividends for years to come. Northrop Grumman is developing its next-generation stealth bomber, the B-21 Raider. The program could run into the 2050s and generate over $200 billion in value during its lifetime.

Meanwhile, Lockheed Martin has made headlines with its F-35 Lightning II program, the world's largest weapons project. Estimates peg its lifetime value at $2 trillion, poised to run through 2088. There is more to Northrop Grumman and Lockheed Martin than these programs, but they help give investors visibility into each company's long-term prospects.

Both stocks are reasonably valued today

Defense stocks have generally risen over the past year due to the ongoing situations in Ukraine and the Middle East, but Northrop Grumman and Lockheed Martin still seem reasonably priced. Both stocks are trading relatively close to their average price-to-earnings ratios from the past decade:

NOC PE Ratio (Forward) data by YCharts

Both stocks have outperformed the S&P 500 during that time. Will the outperformance continue? Time will tell. What is clear is that both companies are poised to pay investors a growing dividend you can count on moving forward.