Image source: Getty Images
Defense stocks are among the most popular during difficult geopolitical and macroeconomic periods. This explains why the BAE systems(LSE:BA.) share price has risen 43% over the past 12 months.
He FTSE 100 The arms maker has risen in value as the war in Ukraine has boosted defense spending forecasts. Concerns about the direction of the global economy have also increased interest in the company. Historically, arms spending has been largely unaffected by general economic conditions.
So could BAE Systems shares be the best option for income investors today?
average returns
Discussing the company’s dividend yield is the first place to start. This indicates how much a stock is expected to pay out in dividends relative to the share price. Therefore, it is a good yardstick to measure the value of money.
BAE Systems’ dividend yield stands at 3.4% for 2023, just below the FTSE 100 forward average of 3.5%. Performance improves by 2024, but only in a fractional way, to 3.6%.
This suggests that the business is not a good fit for generating passive income that outperforms the market today. There are dozens of FTSE index stocks with future dividend yields north of east.
well protected
That being said, BAE Systems appears to be in excellent shape to meet the City’s payment forecasts. The same cannot be said for all London stocks as the UK and global economies sizzle.
The company is expected to pay an annual dividend of 28.8 pence per share in 2023. A dividend payment of 30.5 pence is anticipated for next year. These anticipated rewards are covered 2.1 times by anticipated earnings.
A reading of twice or more provides a decent margin of safety for investors.
BAE Systems also has a strong balance sheet that could help it pay projected dividends even if earnings disappoint. In fact, his ample liquidity encouraged him to launch a three-year, £1.5bn share buyback program over the summer.
dividend growth
Personally speaking, I would buy BAE Systems shares because of its brilliant track record of annual dividend growth. Owning income shares that reliably increase the annual payment can protect investors’ wealth from inflation-related pressure.
This FTSE 100 stock has increased total dividend every year since the early 2000s. Its strong market outlook and robust balance sheet suggest payouts should continue to grow for the foreseeable future.
The verdict
Of course, BAE Systems shares are not immune to risk. Supply chains are a problem in the industry and could affect the company’s ability to fulfill orders. It also has to compete with other major US and UK defense companies for government contracts.
But overall, I think BAE Systems is one of the safest FTSE 100 dividend payers out there. Global defense spending topped £2 trillion for the first time in 2021, according to the latest data from the Stockholm International Peace Research Institute.
Spending is also on track to continue growing strongly after Russia’s invasion of Ukraine. And because of its strong relationships with Western governments, BAE Systems can expect orders to continue to rise in the long term. I would happily buy this dividend stock if I had the extra money to invest.
var config = {
apiKey: ‘1ed121d592e04642d57912bb369ef696621661a3’,
product: ‘PRO_MULTISITE’,
logConsent: false,
notifyOnce: false,
initialState: ‘NOTIFY’,
position: ‘LEFT’,
theme: ‘DARK’,
layout: ‘SLIDEOUT’,
toggleType: ‘slider’,
iabCMP: false,
closeStyle: ‘button’,
consentCookieExpiry: 90,
subDomains : true,
rejectButton: false,
settingsStyle : ‘button’,
encodeCookie : false,
accessibility: {
accessKey: ‘C’,
highlightFocus: false },
onLoad: function () { // hide Cookie Control recommended settings button.
var recommendedSettingsButton = document.getElementById(‘ccc-recommended-settings’);
if (recommendedSettingsButton) {
recommendedSettingsButton.classList.add(‘hide’);
} },
text: {
title: ‘Privacy Notice’,
intro: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
necessaryTitle: ”,
necessaryDescription: ”,
thirdPartyTitle: ‘Warning: Some cookies require your attention’,
thirdPartyDescription: ‘Consent for the following cookies could not be automatically revoked. Please follow the link(s) below to opt out manually.’,
on: ‘On’,
off: ‘Off’,
accept: ‘Accept’,
settings: ‘Cookie Preferences’,
acceptRecommended: ‘Accept Recommended Settings’,
notifyTitle: ‘Privacy Notice’,
notifyDescription: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
closeLabel: ‘Save Preferences and Close’,
accessibilityAlert: ‘This site uses cookies to store information. Press accesskey C to learn more about your options.’,
rejectSettings: ‘Reject All’,
reject: ‘Reject’,
},
branding: {
fontColor: ‘#fff’,
fontFamily: ‘Arial,sans-serif’,
fontSizeTitle: ‘1.2em’,
fontSizeHeaders: ‘1em’,
fontSize: ‘1em’,
backgroundColor: ‘#313147’,
toggleText: ‘#fff’,
toggleColor: ‘#2f2f5f’,
toggleBackground: ‘#111125’,
alertText: ‘#fff’,
alertBackground: ‘#111125’,
acceptText: ‘#ffffff’,
acceptBackground: ‘#111125′,
buttonIcon: null,
buttonIconWidth: ’64px’,
buttonIconHeight: ’64px’,
removeIcon: false,
removeAbout: false },
necessaryCookies: ( ‘wordpress_*’,’wordpress_logged_in_*’,’CookieControl’,’PHPSESSID’,’fivc’,’fivs’,’fivp’,’Ookie’,’Fool_subinfo’,’_gads’,’_gid’,’_gat’,’_ga’,’__utma’ ),
optionalCookies: (
{
name: ‘Sharing’,
label: ‘I would like content tailored to my personal preferences.’,
description: ‘We work with advertising partners to show you ads of products and services you may be interested in. You can choose whether or not to have ads delivered in a personalised way by setting this option. You can return to review this setting at any time by clicking the "C" logo in the bottom left corner of any page.’,
cookies: ( ‘_ga’, ‘_gid’, ‘_gat’, ‘__utma’, ‘_gads’ ),
onAccept: function () {
// Add Facebook Pixel
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=();t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)(0);
s.parentNode.insertBefore(t,s)}(window,document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘901682110316659’);
fbq(‘track’, ‘PageView’);
fbq(‘consent’, ‘grant’);
// End Facebook Pixel
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, true ) ;
},
onRevoke: function () {
fbq(‘consent’, ‘revoke’);
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, false ) ;
},
recommendedState: ‘on’,
lawfulBasis: ‘consent’,
},
),
statement: {
description: ”,
name: ”,
url: ‘https://www.fool.co.uk/help/privacy-and-cookie-statement/’,
updated: ”
},
};
CookieControl.load(config);
