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.
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.
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