The Benefits Of Investing In BAE Systems plc

Today I am outlining why BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) could be considered an attractive addition to any stocks portfolio.

An established favourite with the West

The sheer scale and diversity of BAE Systems’ businesses makes it a top-level supplier with the US and UK armed forces, exemplified by the delivery of Britain’s cutting-edge HMS Queen Elizabeth aircraft carrier in July.

Defence budgets on both sides of the Atlantic are providing the world’s weapons builders with improved near-term visibility in the face of BAe Systemsimproving economic conditions. And I believe that the company’s order book can look forward to a slew of new business from these critical customers in coming years.

Indeed, BAE Systems reported just last week that it had inked a £348m deal with the Ministry of Defence to build three Offshore Patrol Vessels (OPVs) for use in counter-terrorism, counter-piracy and anti-smuggling operations. Construction is due to commence in October with delivery expected in 2017.

The deal is the latest in a steady stream inked with the UK armed forces, and the firm advised in July’s interims that it was in late-stage negotiations with the British Navy concerning up to £1bn worth of sole source contracts.

And in a bid to boost business with the US military, BAE Systems also announced its intention to purchase imaging and data analytics specialists Signal Innovations Group (SIG) last month. The American firm is already a key supplier to its intelligence sectors back home, and the deal should also bolster BAE Systems’ existing in-house expertise in the area.

Capital qualities boost growth and income prospects

Not only does BAE Systems’ ability to generate boatloads of cash bode leave it in good stead to chase down even more acquisition targets, but the company’s strong balance sheet also makes it an attractive pick for income chasers. The business reported positive free cash flow of £146m during January-June, swinging from negative cash flow of £990m during the previous 12-month period.

This quality has enabled the firm to keep dividends moving higher during the past five years, and City expectations of further expansion this year and next creates bumper yields of 4.8% and 4.9% respectively.

In addition, the firm’s healthy capital flows have also enabled it to embark on a huge, three-year share repurchase programme which kicked off last year. As far the firm has completed just under half of a planned £1bn target, and I believe that investors can look forward to increasingly-tantalising rewards as sales to traditional clients — as well as those in new territories — take off in future years.

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Royston Wild has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.