Great long-term investments can come in a variety of ways, but a tried-and-true strategy is finding businesses in durable industries with steadily increasing dividends getting paid out to shareholders each year. And of course, these stocks need to be trading at reasonable valuations. One industry with a strong history of dividend payouts is aerospace and defense. Three top dividend stocks that investors should look at in this sector are Lockheed Martin (NYSE:LMT), General Dynamics (NYSE:GD), and Raytheon Technologies (NYSE:RTX). Here's why. 

Lockheed Martin

Lockheed Martin is a wide-ranging company with products in aerospace, defense, information security, and technology. It sells a variety of defense products to the U.S. government and its allies, including fighter jets like the F-22 and F-35, but it has dozens of products across all different fields. In fact, the company designed the Mars helicopter that NASA landed back in 2020. 

A fighter jet getting ready to launch.

Image source: Getty Images.

The company has a strong history of growing profitability. From 2011 to 2020 annual net income has grown from $2.66 billion to $6.89 billion. This profit growth enables Lockheed to steadily raise its dividend. Over the past decade, it has raised its dividend per share every year, going from $3.26 in 2011 to $9.87 in 2020. The stock currently has a dividend yield of 2.73%, which is much higher than the broad S&P 500 index that currently yields 1.32%. These large and growing dividend payouts have greatly contributed to Lockheed Martin's total return (share price appreciation plus dividends) outperforming the S&P 500, which you can see in the chart below. 

General Dynamics

General Dynamics is another large aerospace and defense company, albeit a bit smaller than Lockheed Martin, with a market cap of $53.4 billion (Lockheed's is currently $106 billion). The company makes products for business aviation, combat vehicles, weapons systems, and much more. Profits have historically been lumpy, with annual net income going down a few times over the past decade, but every year from 2011 to 2020, except for 2012, has seen net profits above $2 billion, which shows the resiliency of the defense business.

Last year, net income came in at $3.16 billion, and 2021 net income is projected to hit $3.25 billion. This strong profitability has led to General Dynamics increasing its dividend over the years, growing from $1.85 in 2011 to $4.32 in 2020. Shareholders are currently getting an annual dividend yield of 2.42%. Like Lockheed Martin, this strong growth in dividend payouts has led to General Dynamics' total return outpacing the S&P 500 over the past few decades.  

Raytheon Technologies

Like the two other companies listed above, Raytheon is a wide-ranging defense company (as you can tell by now, the U.S. defense budget has plenty of dollars to go around). It works in space, missiles and defense, and it owns Collins Aerospace and Pratt & Whitney (an aerospace engine company).

Raytheon's business struggled in 2020 because of its exposure to commercial aviation with Pratt & Whitney and Collins, with free cash flow falling to $1.64 billion, the lowest that number has been since 2011. But this year it is guiding for free cash flow to recover, with a full-year guidance range of $4.5 billion to $5 billion. If you look at its dividend history, it looks like Raytheon has recently cut its dividend per share, but that was just the impact of its merger with United Technologies. And with free cash flow projected to recover in 2021, investors shouldn't worry about any future dividend cuts, either. Raytheon currently has a dividend yield of 2.22%.

It may sound like a broken record, but these strong dividend payouts are a big reason why Raytheon has outperformed the S&P 500 over the last few decades (catching a theme here?). In fact, out of all three, Raytheon Technologies has been the best performer over the past 25 years. 

LMT Total Return Level Chart

LMT Total Return Level data by YCharts

The aerospace and defense sector is a great example of what steady dividend payouts can do to long-term performance. None of these three companies are growing that quickly, but with steady profits and rising (for the most part) dividends, shareholders have been able to outperform the S&P 500 over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.