It seems hardly any time ago that the aerospace and defence sector was supposedly in the doldrums, with UK and US government spending being reined in because of the economic crisis.
But over the past 10 years, BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) shares have grown in value by 118% while the FTSE 100 has struggled to make 50%, and that doesn’t include BAE’s better-than-average dividend yields. Admittedly, the price is still slightly below its previous peak in late 2007, but anyone buying regularly since then would have seen their investments boosted by the affect of pound-cost-averaging during the intervening years.
52-week high
If you’d plumped for BAE after the recession ended with a view of it as a leading company in a potentially recovering market, you’d be doing nicely already, as BAE shares soared to a 52-week record of 476.5p on Friday 19 September — and after dropping a little, they regained the same level again on Tuesday 23rd.
Over 12 months that’s a modest overall 6% rise rise against 2% for the FTSE, but over three years BAE shares are up 75% while the FTSE has failed to make 30%.
Was it an unfairly depressed stock? I think it was.
International strength
Part of BAE’s strength is that it is not dependent on its home market for its sales, but also has a very healthy relationship with the Kingdom of Saudi Arabia — its Salam Typhoon contract has been a major contributor to the bottom line in recent years. In fact, at the time of BAE’s first-half report released in July, chief executive Ian King made it a key part of his comments, saying: “We continue to see a high level of activity in international markets, including from our substantial presence in the Kingdom of Saudi Arabia“.
He also told us that “We are finalising a further £1.3bn of international orders and are at an advanced stage of negotiations on a further £1bn of UK sole source naval contracts“.
Overall, BAE had an order backlog of almost £40bn at interim time. Does that sound like an industry in a slump? No, it doesn’t to me, either.
Very reliable
But what I really like about BAE Systems as an investment is that it is one of the most solid dividend payers out there.
Back in 2009 we saw 16p per share for a yield of 4.5%, and that has risen steadily to 20p in 2013. Forecasts suggest more of the same — there’s a modest rise of 1.3% forecast for this year to provide a yield of 4.3%, with a further 2.5% rise pencilled in for 2015 for 4.4%.
Those might not be meteoric rises, but they’re well covered by earnings, they’re significantly above the FTSE average of around 3%, and they’re very dependable.
Back in 2011, BAE Systems shares could have been picked up on a P/E of a mere 6.3 — the world really had gone mad.