BAE Systems (LSE: BA.) shares have been a great investment in recent years. Not only have they provided significant capital gains (approximately 100% over three years) but they have also delivered a growing stream of dividends. Here, I’m going to look at the BAE Systems dividend forecast for 2023 and 2024. What kind of yield can investors expect to receive from the shares going forward?
Good track record
Before I provide the forecasts, it’s worth taking a step back and looking at BAE’s recent dividend track record for context. Here’s a look at the income paid out by the defence company over the last five years.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Dividend per share | 22.2p | 23.2p | 23.7p | 25.1p | 27.0p |
The table shows that BAE has been a reliable dividend payer. Even during Covid, the company continued to pay (and even increased) them.
Dividend forecasts
As for forecasts, at present, analysts expect BAE to pay out 28.9p per share for 2023. They then expect the group to pay out 31.1p per share for 2024.
At today’s share price, these estimated payouts translate to yields of around 3% and 3.2%.
It’s worth noting here that dividend coverage (a measure of dividend safety that’s calculated by dividing earnings by dividends) is expected to be over two for both 2023 and 2024.
This is very encouraging. This high level of coverage indicates there’s little chance of a dividend cut in the near term.
Worth buying?
Are BAE Systems worth buying at current levels in light of these dividend forecasts?
I think so. To my mind, it’s hard to think of an industry that’s safer than defence right now.
With so much geopolitical tension globally (Russia/Ukraine, China/Taiwan, etc), government spending on defence is likely to remain robust in the years ahead.
So the backdrop for BAE is very supportive, in my view.
It’s worth pointing out here that in its full-year 2022 results, BAE said it had an order backlog of a huge £58.9bn.
And management was very optimistic about the future.
“For 2023, we’re forecasting further top-line growth, continued margin expansion, higher EPS and we’re also increasing our rolling three-year cash targets, all of which demonstrate that the business has growing momentum for the future,” said Group Finance Director Brad Greve in the full-year results.
As for the stock’s valuation, it still seems reasonable to me. With analysts expecting earnings per share of 59.1p for 2023, the forward-looking price-to-earnings (P/E) ratio is about 16.5.
That is higher than the UK market average, but not dramatically higher.
Of course, defence spending may not stay strong forever. It could experience a downturn at some stage. This could impact BAE’s prospects.
However, right now, the outlook is healthy. So I think BAE Systems is worth buying.
