Editor's note: Our Pre-Memorial Day special examines military-related stocks and how to buy, sell or trade them. This feature includes a video by Gregg Greenberg, Defense-Stock Domination; and articles by Marc Courtenay One Priced to Buy; Robert Weinstein Bigger Guns, Bigger Profits; Richard Saintvilus Boeing's Offense Is Defense; Richard Suttmeier Sequester Survivors; and Richard Cox Bullish Earnings Support Defense.NEW YORK ( TheStreet) -- First off, here's your current-events quiz for the day. Who is the U.S. Secretary of Defense? If you don't know off the top of your head, don't feel bad, because I didn't either. Chuck Hagel was sworn in as the 24th Secretary of Defense on Feb. 27, 2013, becoming the first enlisted combat veteran to lead the Department of Defense. You may recall that he was elected to the U.S. Senate in 1996 and represented Nebraska until 2009. Secretary Hagel was also a businessman earlier in his career. During the 1980s he co-founded Vanguard Cellular Systems, which became one of the largest independent cellular networks in the country. Secretary Hagel also served as president of McCarthy & Company, an Omaha, Neb.-based investment bank. He understands war, the defense industry and -- from what I've read about him -- big business and international economics. As a senator, Hagel chaired the Foreign Relations International Economic Policy, Export and Trade Promotion Subcommittee and the Banking Committee's International Trade and Finance and Securities Subcommittees.
So when it comes to the Big Four defense contractors, Boeing ( BA), Lockheed Martin ( LMT), Raytheon ( RTN) and Northrop Grumman ( NOC), all should feel more secure with Secretary Hagel's background and credentials. The question I'd now like to pose is, which of these companies is the most attractively priced? Each has had a nice run higher in 2013. Lockheed Martin currently has the best dividend yield-to-price (around 4.3%) and Boeing has the lowest (1.97%). Shares will cool down in a stock market correction.
NOC goes ex-dividend on May 23, 2013, which means you would have had to own it by the close of the market on May 22 to be eligible for this quarter's dividend. If you're considering NOC at this point, you should be able to lock in a yield-to-price of around 3.03%. NOC shares were recently trading for more than $80, up nearly 20% this year. Its price-to-earnings ratio of 10.3 is less than the S&P 500's 17.7. This is an important metric for value investors.
Raytheon makes electronics and integrates mission systems. It's also the world's largest producer of guided missiles. Think of it as the company that makes the "brains" and the operating systems for a wide variety of sophisticated surveillance, monitoring, simulation and weaponry systems that many nations rely upon. It has been in the news lately, having been awarded some lucrative government contracts. Two big news releases from RTN's easy-to-navigate Web site bode well for the company and for investors. Raytheon, with 2012 sales of $24 billion and 68,000 employees worldwide, received "full-rate" approval from a Defense Acquisition Board for production of RTN's Standard Missile-6 (SM-6). This is what I'd call a big-ticket item, but the press release didn't disclose the costs of purchasing the SM-6 or how many the Defense Dept. will be purchasing. My best guess is the government ordered hundreds of millions of dollars worth of the SM-6, and I base that on RTN's own response to the "full-rate" approval. "SM-6 is a game-changing, transformational fleet defense missile, and we're on track to reach initial operating capability this year," said Wes Kremer, Raytheon Missile Systems' vice president of Air and Missile Defense Systems. "This is a monumental moment for the SM-6 program and signifies a new era of fleet defense for our naval warfighters."
A picture does paint a thousand words, and the picture above influences me to choose Raytheon as the defense contractor that's "still priced to buy" even though it hit a 52-week high this week. With its $2.20-per-share annual dividend (last quarterly distribution was on April 1) the current dividend yield-to-price is a delectable 3.32%. I anticipate the next dividend payday to be July 1, and with a modest payout ratio of only 34%, RTN has some wiggle room to increase the dividend and further reward shareholders. It's current and forward (one-year) P/E ratios are only slightly greater than 11, a modest figure.