So, we’ve been through a tough few years for the aerospace and defence industry, and companies like BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) have been struggling, have they?
And we don’t want to risk wasting our ISA allowance (which will soon rise to £15,000) on them, do we?
Well, take a look at this:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2009 | 40.1p | +8% | 9.0 | 16.0p | — | 4.5% | 2.5x |
| 2010 | 39.8p | -1% | 8.3 | 17.5p | +9.4% | 5.3% | 2.3x |
| 2011 | 45.6p | +15% | 6.3 | 18.8p | +7.4% | 6.6% | 2.4x |
| 2012 | 38.7p | -15% | 8.7 | 19.5p | +3.7% | 5.8% | 2.0x |
| 2013 | 42.0p | +8% | 10.4 | 20.1p | +3.1% | 4.6% | 2.1x |
| 2014* | 40.5p | -4% | 10.2 | 20.6p | +2.5% | 5.3% | 2.0x |
| 2015* | 41.6p | +3% | 9.9 | 21.0p | +1.9% | 5.4% | 2.0x |
* forecast
Sure, earnings have been a little bit erratic, but the dividend hasn’t faltered — in fact, dividend rises have been comfortably beating inflation. The yield, at around 5% and better, is excellent, and it’s been covered just fine by earnings.
BAE did well!
Some struggle, huh?
Admittedly, the share price took a bit of a hit in February when 2013 revenues came in around £700m below analysts’ expectations, with cuts in US defence spending taking the blame. But at 418p, the share price is still up 6% over the past 12 months, which is a bit ahead of the FTSE 100 — and don’t forget that FTSE-beating 4.6% dividend for the year!
The picture is not so rosy over five years, with only a 20% gain against the FTSE’s 70% — but during a tough period for the industry, that’s really not so bad.
ISA investments are really best suited to the very long term anyway, and over the past 10 years BAE is back on top again — 120% compared to the FTSE’s 50% (and did I mention those superior dividends?)
Long term bet
What about the future? Even if we assume a modest 3% growth per year in the share price (which I think is pretty conservative considering the low forward P/E of only 10), and reinvest an annual 5% dividend over the next 20 years — we’d end up turning every £1,000 put into BAE shares into nearly £4,700!
As long as you’re happy the aerospace and defence business has a good long-term future, BAE has to be worth considering, don’t you think?