1 bargain FTSE 100 dividend stock to buy now

Finding a reliable source of dividends at a great price isn’t always easy. However, this Fool thinks this FTSE 100 (INDEXFTSE:UKX) stock fits the bill.

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The last year has shown that not all dividend stocks are created equal. Many companies have needed to cut their payouts completely in an attempt to shore up balance sheets. Others have proven far more resilient. Today I’m picking out one example of the latter from the FTSE 100 that I think still offers great value if dividends were important to my investment strategy. 

Rising sales

This morning’s half-year numbers from defence giant BAE Systems (LSE: BA) have been lapped up by the market. It’s not hard to see why. 

Despite the ongoing pandemic, sales rose by 6% over the first six months of 2021 to a little over £10bn. Revenue also climbed 2% to £9.3bn and profit jumped by 61% to £1.3bn. Considering the tough trading conditions, this all looks pretty reassuring. The fact that the company has also taken steps to address its pension deficit gets another tick from me.

Looking ahead, I’m confident BAE can build on this momentum. In addition to a robust £35.5bn order book, increased investment in new technology will allow the company to support customers facing what CEO Charles Woodburn described as “an evolving threat environment“.  This should really pay off, especially in areas such as cybersecurity — a potentially lucrative theme for investors that I’m tempted to tap into sooner rather than later.

Dividend hike!

Although currency headwinds could have an impact, BAE maintained its prediction that sales will grow 3%-5% in the current financial year. It also raised its guidance on underlying earnings per share to increase by the same range. 

As positive as all this is, it was news that free cash flow was expected to exceed £1bn that really grabbed my attention. Ultimately, this should be good news for the dividend stream.

Speaking of which, the company announced an interim dividend of 9.9p per share today. That’s 5% up on last year. With analysts predicting the company will return 24.5p per share in total for 2021, BAE has a forecast yield of 4.2% at today’s share price.  

It gets better. In addition to the dividend hike, the company also revealed it would be buying back £500m of its shares over the next year. This should provide some support for the price going forward. 

FTSE 100 laggard

Before markets opened, BAE shares traded on 12 times forecast earnings. That still looks great value to me.

This is not to say that the FTSE 100 stock is a risk-free investment. Yes, Covid-19 infection rates are falling in the UK but rising cases elsewhere could impact operations in other markets. As the company itself highlighted, geopolitical tensions could also prove problematic.

Based on its long-term performance, the arms titan isn’t a stock to hold for capital gains either. Although up 21% since last July, the shares have barely budged in value over the last five years and underperformed the FTSE 100!

Core holding

In sum, this top-tier chugger wouldn’t be on my list if I were searching for income and share price appreciation. If I were happy to take on more risk, there are also other companies in the same index that offer even higher yields

Notwithstanding this, I continue to rate BAE as a core holding for a portfolio focused on dividends. And if I were to reinvest these, the end result should be even better thanks to compounding.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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