What’s going on here? The world’s biggest aerospace and defense companies look set to roll in record cash over the next three years. What does this mean? The top 15 defense contractors are likely to nearly double their “free cash flow” – the extra cash a company’s left with at the end of the day – to a hefty $52 billion by 2026. That windfall is being driven by pumped-up military budgets, as governments increase spending because of the situations in Ukraine, the Middle East, and Asia. Order books are bursting at the seams and, although it usually takes a few years for these contracts to translate into sales, the cash is already piling up. Why should I care? For markets: An endless cycle. Defense giants have to spend their newfound cash wisely. So far, the industry’s been sticking to its usual playbook of aggressive buybacks, with companies spending billions to scoop up their own shares to make the remaining ones rarer and pricier. But with so much focus on buybacks, lawmakers are starting to question whether enough is being invested into new facilities and production. In fairness, it’s tricky to decide where to flash the cash. There’s the possibility of firing up the factories, but many haven’t been used to maximum capacity for years. And while firms could use their funds to buy up other companies, that decision could be slowed down by regulatory roadblocks. The bigger picture: A safe pair of hands. Strong cash flows aside, the defense industry might feel the love for other reasons, especially during an election year that’ll see half of the world head to the polls. Many investors will be looking to protect their portfolios from political fallout, which means finding sectors that tend to stay strong regardless of election outcomes. And around the world, defense is often a top priority for every party, with government funding and long-term contracts making the sector seem like a reliable bet for investors – even in politically turbulent times. | 