As stock markets crashed this morning, there aren’t many places for investors to hide. One exception is FTSE 100 defence giant BAE Systems (LSE: BA). Somewhat predictably, its shares are firmly in positive territory. Regardless of what happens next in Eastern Europe, I think this remains a great stock to hold for the passive income it generates.
Results
Although unlikely to be the main catalyst for today’s rise in the share price (+5%, as I type), it’s worth touching on today’s unintentionally well-timed full-year results.
At £21.3bn, sales rose by 5% in 2021. Underlying earnings moved 13% higher to £2.21bn. Positively, the company also reduced its net debt pile down to £2.16bn from £2.72bn the year before. This is something I particularly like to see any company doing, even though I doubt this burden has caused investors any sleepless nights.
On a statutory basis, revenue rose slightly to £19.5bn and operating profit jumped by almost 24% to £2.39bn. BAE’s order book decreased slightly to £35.5bn.
As a whole, I see all this as a decent set of numbers from the FTSE 100 giant. Then again, I strongly suspect the share price would have moved higher today anyway.
Dividend delight
Looking ahead, BAE said it expected total sales to grow between 2% to 4% in 2022. Encouragingly, roughly 75% of these are “already in the order backlog“.
Out of interest, its Maritime and Cyber & Intelligence divisions are likely to experience the biggest rise in sales. The latter comes as no surprise to me considering yesterday’s report from the Department for Digital, Culture, Media and Sport. It stated the UK cybersecurity sector achieved double-digit growth last year. As I’ve stated previously, I believe this will be one of the biggest investment themes of the next decade.
Importantly for income hunters, the FTSE 100 member said free cash flow in 2022 was now likely to be “in excess of £1bn“. That should mean that the dividend stream — BAE’s biggest attraction, in my opinion — should be just fine.
Speaking of which, BAE announced a final dividend of 15.2p this morning. This brings the total cash return for FY21 to 25.1p per share. At the current share price, that equates to a trailing yield of 4%. Although nothing is guaranteed, analysts have the company hiking the dividend by another 5.5% this year.
Safe haven?
The invasion of Ukraine by Russian forces is clearly worrying at a human level. Seen purely from an investment perspective however, there are certainly worse places to park my capital than BAE Systems.
This is not to say the shares won’t experience some volatility in the weeks and months ahead. When times are tough, traders exit first and ask questions later. And right now, there’s no telling when this stock market crash will end. That’s hard to endure as an investor, even if it may lead to some great buying opportunities.
In addition to this, I should mention that the BAE share price is barely higher today compared to where it was five years ago. As well as going some way to justifying the stock’s relatively low valuation (12 times earnings), this also shows just how important those dividends are to the investment case. Without them, I’d be far less inclined to invest, as good as the aforementioned growth prospects for its cybersecurity arm are.
