<div id="readability-page-1">As tensions continue to run high in multiple areas around the globe, the goods and services of defense companies will, undoubtedly, remain in high demand. Of the many choices, two common considerations that are often found on the radars of those seeking a defense investment are RTX (RTX 0.67%) and Lockheed Martin (LMT 0.41%). Let's see how two fool.com contributors break down the bull cases for each stock. <h2>This aerospace and defense giant's prospects are improving</h2> Lee Samaha (RTX): While I don't think RTX is particularly undervalued right now, it has good earnings growth prospects, a useful 2.2% dividend yield, and a solid mix of businesses. The mix of defense and aerospace businesses has worked well in recent years, with the cash flows from defense helping RTX's commercial aerospace businesses overcome severe challenges during the lockdown periods. It's a critical point given the nature of both businesses. For example, it takes years of investment to produce airplane engines or defense equipment, and a steady stream of cash flow is necessary to secure investment. As such, RTX is a relatively secure business. Its Pratt &amp; Whitney segment, which makes airplane engines, has a long-term income stream from lucrative aftermarket revenue from servicing engines. Meanwhile, Collins Aerospace is a leading original equipment and aftermarket supplier to the aerospace industry. While there are question marks around the Raytheon defense-focused segment's profit margin and overall defense industry margins, there are none around Raytheon's current backlog of $51 billion. For reference, Raytheon's sales were $26.4 billion in 2023, and the book-to-bill ratio at Raytheon was 1.13 over the past 12 months to the end of the second quarter. Everything points to a period of solid growth, notably as Pratt &amp; Whitney moves past the GTF engine inspection issue. Wall Street analysts see RTX's earnings growing at a 10% rate over the next few years. With a 2.2% dividend yield, the stock could generate decent returns for investors over the long term. <h2>Come for Lockheed Martin's dividend and stay for the valuation</h2> Scott Levine (Lockheed Martin): It's not only the fact that Lockheed Martin's dividend now offers a forward yield of 2.3%. The company has shown a quality that is lacking in RTX: consistent dedication to raising the dividend higher, a desirable quality for defense investors looking to boost their passive income. <img src="https://imageproxy.pbkrs.com/https://media.ycharts.com/charts/4bdd7d866cec724ebbbf4132751ae376.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="720" height="456" original-src="https://imageproxy.pbkrs.com/https://media.ycharts.com/charts/4bdd7d866cec724ebbbf4132751ae376.png"/> LMT Dividend Per Share (Annual) data by YCharts. Lockheed Martin's allure, however, transcends the growing payout. It has done so without imperiling the company's financial health. Over the past five years, Lockheed Martin has averaged a conservative 47% payout ratio. On the other hand, RTX has averaged a more concerning 101% payout ratio during the same period. Coming off a strong first half of 2024, Lockheed Martin upwardly revised its 2024 guidance recently. Whereas it had originally forecast 2024 revenue of $68.5 billion to $70 billion, it now expects to post sales of $70.5 billion to $71.5 billion. Management foresees better results at the bottom of the income statement as well, raising its diluted earnings per share (EPS) outlook to $26.10 to $26.60 from $25.65 to $26.35. A leader in defense solutions, Lockheed Martin has also paid considerable attention to the final frontier, making it a top choice for investors looking to gain exposure to the burgeoning space economy. Growing its position even further, Lockheed Martin announced its planned acquisition of Terran Orbital, a satellite manufacturer. The transaction, expected to close in the fourth quarter of 2024, is valued at $450 million, considerably less than the $600 million offer that Lockheed Martin had previously made. Lockheed Martin's stock isn't a screaming buy now, but it's valuation is certainly attractive. Lockheed Martin stock is currently trading at 20.2 times trailing earnings, a steep discount to RTX's P/E of 68.5. Similarly, Lockheed Martin is valued at 16.1 times operating cash flow whereas RTX stock has a cash flow multiple of 27.7. <h2>Should you buy these stocks now?</h2> Both RTX and Lockheed Martin are compelling options for investors looking to fortify their portfolios with a compelling defense stock. For those who'd also be happy to have a top space stock among their holdings, Lockheed Martin will shine brighter than RTX, while those who are interested in a more concentrated defense contractor will be drawn to RTX. </div>

As global tensions rise, defense companies like RTX and Lockheed Martin are high on investors' radar. RTX is appealing with its growth prospects and a 2.2% dividend yield, despite concerns over profit margins. In contrast, Lockheed Martin offers a secure dividend and strong financial health, with a revised revenue outlook for 2024 and a planned acquisition of satellite manufacturer Terran Orbital. Lockheed's stock is currently undervalued compared to RTX, making both companies attractive options for investors seeking defense and aerospace exposure.

Better Buy: RTX vs. Lockheed Martin