Can BAE Systems plc Help You To Retire Rich?


The last month has been a strong one for investors in BAE (LSE: BA) (NASDAQOTH: BAESY.US), with sentiment in the defence company improving after a tough year. Shares in the company are up 5.5% in the last month alone, which shows that investors can, eventually, move on from a profit warning such as the one BAE had earlier in the year.

Indeed, while earnings for 2014 are set to be 11% down on where they were in 2013, the future still looks bright for BAE. Best of all, it could help you retire rich. Here’s how.

A Return To Growth

As mentioned, 2014 is due to be a tough year for BAE. Savage cuts to defence budgets across the world, notably in the US where sequestration is hurting its defence sector to a large extent, are having a detrimental impact on the company’s bottom line.

However, 2015 is set to be much better, with BAE’s bottom line expected to increase by 4%. This shows that, while the company is not immune from the market conditions it currently faces, it remains highly efficient and able to match the wider market’s earnings growth rate – even when demand for defence products is at a low ebb. This should give investors in the stock a degree of confidence about its future resilience.

Income Potential

As ever, BAE remains a top income play. For example, shares in the company currently yield a highly impressive 4.4% and, with a payout ratio of just 54%, there is room for dividends to grow at a brisk pace – even if earnings growth disappoints in the short term.

As for the reliability of BAE’s dividends, it is one of the few FTSE 100 companies that has increased dividends per share in every one of the last four years. During this period, BAE’s dividends per share have grown at an annualised rate of 5.9%, which is well ahead of inflation and, therefore, hugely appealing.

Looking Ahead

Although the defence sector is likely to continue to offer investors only slow growth over the short term as a result of austerity measures across the developed world, BAE’s current share price appears to adequately price that in. For example, BAE currently trades on a price to earnings (P/E) ratio of just 12.4, which is below the FTSE 100’s P/E of 13.5 and shows there is upside potential.

For this reason, as well as its return to growth in 2015 and appealing and reliable income prospects, BAE could prove to be a winning investment that helps you to retire rich.

Clearly, you need more than just a holding in BAE to retire rich. So, which other shares should you buy, and why?

A great place to start is a free and without obligation guide from The Motley Fool called How You Can Retire Seriously Rich.

The guide is simple, clear and actionable – you can put it to use on your portfolio right away. It could help to make your retirement a much more prosperous one and even bring your retirement age down by a few years!

Click here to access your copy of the guide – it’s completely free and comes without any further obligation. 

Peter Stephens owns shares of BAE.