Profit From Cybersecurity With BAE Systems plc

BAE Systems plc (LON: BA) will profit from the demand for data protection.

| 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.

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.

BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) is best known for the manufacture of military hardware, such as aircraft and warships.

However, BAE is no longer a traditional defence contract. Over the past 25 years BAE Systems has been adapting its product offering, making investments technology and beefing up the company’s cybersecurity division.

For current and potential shareholders alike this is great news. Cybersecurity is a booming industry and as the world becomes increasingly dependent upon digital infrastructure, the businesses of protecting data and private information is going to expand rapidly.  

Steady transitionbae

BAE has steadily transformed itself over the past two-and-a-half decades. The evolution of BAE Systems has seen the group’s business develop from the supply of equipment, into a service provider. Now, around 50% of BAE’s sales are generated from services, across a wide range of activities and geographies.

Key to the cybercrime side of BAE is the company’s Applied Intelligence division. Here, BAE combines what it calls, ‘intelligence-grade’ security, complex services and solutions integration.

The company’s Applied Intelligence team is active in four areas, cyber security, financial crime, communications intelligence and digital transformation. These terms may seem complex, but put simply, BAE is a one-stop-shop for clients who want to eliminate all cyber security threats.

Opportunities for growth 

So far there has been a strong demand for BAE’s services. Indeed, Applied Intelligence saw its order backlog jump 25% during the first half of this year, after a 60% increase during the first half of 2013. Management complimented this growth by proposing the bolt-on acquisition of Signal Innovations Group, Inc, a U.S. based imagery and data analysis company. 

Unfortunately, BAE’s wider cyber and intelligence business is shrinking, with overall sales falling 13% during the first half of this year. However, Applied Intelligence remains strong, sales grew 7% during the first half of the year to a total of $276m, and there is still plenty of room for growth.

Safeguarding the dividend  

BAE’s transition from a hardware provider, into a services’ provider is safeguarding the company’s future. For example, as defence spending around the world falls, as it has been over the past few years, BAE has been struggling to drive growth. Applied Intelligence should solve this problem as the need for data protection will see increasing demand going forward. 

For shareholders this is great news. Rising income from the cyber security side of the business will underline one of BAE’s most attractive qualities, the dividend payout.  

At present levels, BAE supports a dividend yield of 4.6% and the payout is covered twice by earnings per share. Further, the payout is set to rise in line with inflation next year, which will see the yield rise to 4.7%. 

A yield of 4.7% would sit well within any portfolio and for the time being this payout looks safe but it always pays to build a well-diversified portfolio of reliable dividend paying stocks allowing you to reduce risk and sleep soundly at night.

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.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »