I wish I had owned a few BAE Systems (LSE: BA.) shares in the last 12 months.
After all, the aerospace and defence firm was the FTSE 100’s biggest riser in 2022. Following that, the company hit a record high last week as the share price nudged over the £10 mark.
Looking further back, shareholders who bought in during the 1990s have enjoyed a 3,000% return.
At today’s price, is it still worth it for me to pick up some shares? Or am I too late to see the best returns?
The jump above £10
The recent jump in the share price for the Farnborough-based firm came after two announcements, both related to the modern F-35 fighter plane.
They were a £147m deal with the Ministry of Defence, and a $491m deal with the aeroplane’s US designer, Lockheed Martin.
A steady supply of work is what I’d hope to see for a defence company. And BAE’s order book is now up to £58bn and counting. And these contracts predate the Ukraine war.
It’s too early to see orders yet from that conflict with Russia. But the British company’s CEO, Charles Woodburn, expects more strong growth “as governments replenish stocks, recapitalise equipment and support allies”.
On that note, talks have already begun with Slovakia and Czech Republic. Nothing has been announced so far, but I might see better share price growth if I bought in before the good news is confirmed.
A stable customer base
Another plus for BAE Systems is that its customers are governments. The need for countries to protect their borders and citizens should ensure a stable income for the company long into the future.
In fact, global defence spending hit a high of $2trn in 2021 which is further good news for the British arms company, if not for the world in general.
A 2.7% dividend
The defence firm pays a good dividend, too. It’s around 2.7% for the year, as things stand. Also, the firm has paid out to its shareholders every year since 2007.
A weighty and consistent payout makes me feel safer about investing. I’d probably see a decent return on my BAE shares even if I was too late to get the best of the gains.
Am I too late?
The biggest risk I see here is nothing to do with the business. It’s to do with the valuation.
Recent share price rises have made BAE stock look potentially overvalued. It now trades at around 19 times earnings, which looks expensive compared to the FTSE 100 average of 14.
If I had £1,000
Let’s say I had a spare £1,000 right now, would I invest it into BAE Systems?
Between a full order book, rising global spending on defence, a stable customer base, and a decent dividend, the shares do seem like a no-brainer buy. Even at their record high.
The caveat here is that I’m ignoring the ethical aspect of investing in a company that makes weapons. BAE is excluded from most ESG portfolios – ones that are ethically minded – for this reason.
I don’t own any stocks like this, so it feels like a hurdle to get over. One that I’m not sure I’m willing to, at present.
