After topping the FTSE 100 in 2022 with a 55.6% rise, BAE Systems (LSE: BA.) shares had a more subdued 2023. Even then though, they still rose nearly 30% as the dreadful war in Ukraine continued and global defence spending climbed higher.
But we’re in 2024 now. Surely the share price is taking a well-earned breather, isn’t it?
Powering on
The short answer is no. The defence stock has repeatedly smashed through new all-time highs and, as I write, now sits at 1,344p. That’s 21% higher than the beginning of January.
This means a £5,000 investment made at the start of 2024 would now be worth around £6,050.
I note there’s a final dividend of 18.5p per share due to be paid on 3 June. That would add another £81 or so to the return.
The company’s 11% dividend hike last year meant the defence giant hasn’t cut its payout for 30 years!
That said, the forward dividend yield is a modest 2.42%.
Record order backlog
In 2023, BAE reported £25.2bn in sales while underlying earnings per share rose 14% to 63.2p, beating its 10%-12% guidance. An order intake of £37.7bn pushed its order backlog to a record £69.8bn.
It anticipates a 10%-12% rise in sales in 2024 and is “well-positioned for sustained growth in the coming years”.
CEO Charles Woodburn commented: “Our focus on operational excellence continues to benefit our customers and shareholders, especially as we execute on complex, long-duration programs like Dreadnought, Type 26 and Hunter Class frigates, Typhoon and F-35 jets, electronic warfare systems, combat vehicles, and many other programs.”
Building on this, the company just acquired US-based Ball Aerospace for $5.5bn (£4.4bn). This will form a new business division known as Space & Mission Systems (SMS).
Election wildcard
One potential issue for defence stocks is that we’re in a US election year. And it now seems likely we will see a re-run of Donald Trump versus Joe Biden.
If elected, Trump has said he will stop funding the war in Ukraine and has even threatened to withdraw from NATO. Nearly half of BAE’s revenues come from the US, so any big cut in military spend could be a major growth headwind.
However, Saxo has noted that “a seat change in the oval office may mean that Europe needs to ramp up its military ability to defend itself, which may mean good times for the European defence industry.”
Therefore, a Republican government could just as easily be a catalyst for further gains for European defence stocks, including BAE.
Yet the fact remains that we don’t know how all this will play out.
My own move
I invested in BAE stock at 806p in November 2022. That holding is up 66% (excluding dividends) and I have no intention of selling it. Should I buy more though?
Currently, the shares are trading at 22 times earnings. That’s the highest that multiple has been for many years, which I’m mindful of here.
Then again, we’ve seemingly entered a new Cold War and Vladimir Putin remains in power. Perhaps that valuation is justified.
Also, BAE’s chair Cressida Hogg has just bought £180,779 worth of shares at £13.20 each. So that’s a bullish move on her part.
On balance though, this is a hold for me as I consider other stocks.
