The BAE Systems (LSE: BA.) share price rocketed 54% in 2022. Based on its dividend forecast for this year, BAE Systems shares now carry a 3.1% dividend yield.
The defence business has traditionally offered yields above the FTSE 100 average. But its soaring share price means they now fall below what the broader index is offering.
The Footsie forward average currently sits at 3.7%. And BAE Systems’ yield trails the blue-chip average for next year too. For 2023 its yield clocks in at 3.4%.
But should I still buy the company’s shares for dividend growth? And how robust do current payout estimates look?
Rock-solid estimates
City brokers reckon BAE Systems will raise 2021’s full-year payout of 25.1p per share to 26.6p this year. Dividends are then tipped to rise to 28.5p in 2023.
Encouragingly, these estimates are covered twice over by expected earnings over the period. This provides a wide level of protection.
The business also has a strong balance sheet to help it meet analysts’ broker forecasts in case profits miss. BAE Systems expects to generate annual cumulative free cash flow north of £4bn all the way through to 2024.
In fact, the business is so flush with cash that it announced a £1.5bn share buyback programme over the summer.
A FTSE 100-beater?
BAE Systems might not offer heart-stopping dividend yields right now. But I still believe it’s a great share to boost investors’ passive income in 2023.
In fact, it could be in a better position to meet its dividend forecasts than many other UK shares. This is thanks to the defence industry’s immunity to broader economic conditions. So its yield for the next few years looks stronger to me than that FTSE 100 average.
Supply chain problems could pose a threat to the company’s profits. But I’m still expecting earnings to grow strongly as countries supercharge investing in their armed forces.
A growing market
In an encouraging assessment, Fitch said last month that “the industry is well positioned for long-term growth as the geopolitical backdrop remains tense and defence capabilities are enhanced”.
The ratings agency has predicted industry tailwinds in the second half of 2023, thanks to increased defence spending by governments. It has forecast “modest” acceleration the following year as well.
BAE Systems is already experiencing very strong demand for its hardware, boosted by the war in Ukraine. In mid-November the company said it had chalked up a further £10bn worth of orders since the start of the second half. This was on top of the £18bn worth it recorded between January and June.
A great dividend share
I believe BAE Systems is a top stock for investors seeking long-term passive income.
The £26bn-cap is a leading player in a growing market. It has trusted relationships with heavy spenders — the US and UK — that date back decades. And it is growing sales in other international markets too, helped by its wide expertise across land, air, sea and in cyberspace.
In fact, I think it could be one of the best FTSE 100 dividend stocks to buy for an uncertain 2023.
