Up 151%! Should I buy this FTSE 250 stock that just reinstated its dividend?

This FTSE 250 stock has been growing like mad in the last few years. Is it time for me to take a punt on the British defence firm?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If I wanted to invest in world-class British engineering then I haven’t too many options these days. But while the days of this country being a manufacturing powerhouse might be long gone, these types of companies are still alive and kicking. The FTSE 100 is home to big names like Rolls-Royce and BAE Systems and the FTSE 250 also includes a couple of interesting options to ‘bet on British’. One of those is the defence firm, Babcock (LSE: BAB), that’s been on a sterling run of late.

Turning point

Defence is undoubtedly a sector on the rise. The German chancellor called the Ukraine invasion “a historical turning point”, when it comes to how much countries are spending to protect themselves and the man might have a point. 

In 2015, only three NATO countries spent 2% of GDP on defence. In 2024, 23 of them spent that much and plenty went well over. Babcock has enjoyed an uptick in orders from the spending, and the shares have risen 151% from a low in 2021. 

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Created with Highcharts 11.4.3Babcock International Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Poland now spends more than any other NATO member and some of that has gone to Babcock. It will oversee the construction of three Arrowhead 140 frigates, to be built in Polish shipyards with local workers. 

These are big boats, 140m long with crews of 100. Over the coming years, they will generate $3.8bn, a serious sum compared to the 2023 topline of £4.4bn. The design is based on the Royal Navy’s Type 31 frigates that Babcock makes and could entice more parties to place orders. 

Indonesia has already signed a similar contract and Poland is rumoured to be in the market for five more of the frigates too.

Supply chains

Those very same ships highlight what I believe is perhaps the biggest cause for concern here: supply costs. The Royal Navy ordered five frigates for £250m each. However, inflation and its effects on supply chains meant Babcock asked for another £50-£100m for the whole project. 

The MoD weren’t too happy about this and the process went into dispute resolution. More broadly, this might be a worrying sign that energy and labour costs might affect operations like in the firm’s base in Plymouth.

With all that being said, the firm released a full-year trading update recently and it seems to be firing on all cylinders. The earning was a beat, coming in at £311m compared to the consensus of analyst expectations of £293m. 

The order backlog rose by 8%, which means earnings growth is likely in the years ahead. Larger cash flows have sparked the resumption of a small dividend for the year too after several years without one. All told, this looks like a stock to keep an eye on. I’m adding it to my watchlist.

Should you buy Lloyds Banking Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Fieldsend has positions in BAE Systems and Rolls-Royce Plc. The Motley Fool UK has recommended BAE Systems and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »