If I had £1,000 to invest in a FTSE 100 stock for my portfolio and hold for a long time, I would pick BAE Systems (LSE:BA). Here’s why.
Defence, security, and aviation
When taking into account geopolitical factors around the world, the business of defence, security, and aerospace is a lucrative space to be in. BAE is one of the world leaders in this sector. Headquartered in the UK, BAE operates across many countries, notably the US, Saudi Arabia, India, and Australia.
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
Governments aren’t afraid to spend handsomely on defence and security so it comes as no surprise that the US Department of Defence is one of BAE’s biggest customers. In fact, the firm sells more to the US than to our own Ministry of Defence (MoD).
As I write, shares in BAE are trading for 565p per share. This time last year shares were trading for 431p, which is a 31% return in 12 months. This return is actually more than the 21% the FTSE 100 index has gained in the same period.
The BAE Systems share price has dipped 5% in the past few weeks due to it going ex-dividend. In addition, some investors banked profits due its recent strong showing. This dip could represent a great opportunity for me to pick up shares cheaper than usual.
Why I like BAE
- BAE Systems is a key player in its respective industry and I believe this is evident in its mammoth order book and regular new contract wins. It continues to win new contracts on a regular basis worth hundreds of millions of dollars. In fact, it has a multi-billion dollar order backlog that goes all the way through to 2030! In addition to future orders, BAE has a history of mergers and acquisitions to boost its offering and profile. I think this is positive as it shows ambition to grow. This growth could offer me more returns as a potential investor.
- My best stocks on the FTSE 100 are consistent performers. This includes historic track records as well as recently too. I do understand that historic performance is not a guarantee of the future but I find it is a useful gauge nevertheless. I can see BAE’s revenue and gross profit have increased year on year for the past three years. BAE’s most recent half-year trading update announced in July was also impressive. My main takeaways were that orders, sales, and free cash flow all increased compared to the same time period last year.
- I like stocks that make me a passive income. BAE ticks this box as it has an excellent dividend track record. As I write, its current dividend yield is close to 4.4%, above the FTSE 100 average of 3%.
FTSE 100 stocks have risks
Despite my bullish stance towards BAE, I must note some credible risks. In times of economic uncertainty and austerity, such as now, there could be a cuts to defence budgets. If this were to happen, BAE’s order book and financials could be affected. This could in turn affect my return such as any dividend payments.
Overall I do believe BAE is one of the best stocks to buy on the FTSE 100 right now. With a spare £1,000, I would happily add BAE shares to my portfolio.
