Image source: Getty Images
He BAE Systems (LSE:BA.) share price is one of the largest FTSE 100 winners this year, and for good reason.
Results released this week show the UK defense giant is on track for a big rise in annual profits. Countries continue to increase military requests with Russia’s war in Ukraine and the recent conflict in Gaza.
The company manufactures fighter aircraft and submarines, among other large military equipment and machinery. It said it had recorded £10bn in orders since the end of June 2023. That puts the group on track to receive more than £30bn in sales orders this year.
Last month I wrote how I bought shares in Kinetic Cluster. It is one of the fastest growing defense companies in the UK. I now see potentially more value in its biggest rival.
And we’ve heard how the company’s business portfolio is booming. BAE Systems chief strategy officer Steve Cardew told the market in August that global conflicts had boosted sales. Especially with the Russian invasion of Ukraine.
In July 2023 it signed an arms deal worth £280 million with the UK government. In September he boosted that bid with another £130m deal.
Shortly afterwards, the US, UK and Australian governments announced they would spend £3.95bn on a new generation of submarines built by BAE Systems. These nuclear-powered submarines will support a pact to counter China’s ambitions in the South Pacific.
This has led BAE to improve its guidance. Earnings per share will rise 10% to 12% in 2023, CEO Charles Woodburn said.
24 years of dividend increases
BAE shares are priced 25% higher than they were at the start of 2023. Quite a move for a £32bn company. And certainly for one of the largest defense, aerospace and weapons manufacturers in the world.
What I’m really interested in here is the long-term value. When pursuing compound growth (the eighth wonder of the world), consistency is key.
And BAE Systems has an incredible track record. Since this would be a long-term income stock for my SIPP, I like one specific fact. The company has improved its dividend per share every year since 1999.
Ignore BAE Systems because its price has gone up? That’s effectively saying you wouldn’t buy a company that’s becoming more popular and growing its revenue, profits, and dividends.
what i would pay
The downside, of course, to all this attention is that the stock now trades at 16 times earnings, a healthy premium. But I see security in numbers. Especially with the way the world is tilted these days.
If you had bought £10,000 worth of BAE shares in 2007 (£4.29 per share, 2,331 shares), you would have collected a modest 12.8p per share in dividends, worth £298.
That same £10,000 invested in 2022 would be worth £452.26 in dividends! Quite an increase.
This, of course, doesn’t include the profit you would have made simply buying the shares 16 years ago and reinvesting the dividends. By my calculations, if I had done that, my initial £10,000 worth of BAE shares would now be worth a tidy £50,403.67. So I can see the power of capitalization and time in the market.
I will leave day trading and leveraged risks to others. I will stick with the best UK companies for my SIPP retirement shares for the long term.
