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2 Numbers That Make BAE Systems plc A Great Stock Selection

Today I am looking at why I believe BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) is a spectacular share pick.

Here are two numbers that I think help make the case.

16

The effect of extreme macroeconomic pressure, combined with a scaleback of operations in Iraq and Afghanistan, on Western defence expenditure has been no laughing matter for the world’s weapons builders in recent years.

Still, latest growth data from the US would have given the likes of BAE Systems huge room for optimism. Numbers released in October showed military purchases leap 16% during July-September, the fastest rate of growth since 2009.

Of course the quarter-on-quarter bump from the world’s biggest arms spender could, in part, be attributed to the effect of bumpiness in contract timings.

But for many, the increased in chequebook activity is more likely down to Washington’s new battle against Islamic State (or ISIS) rebel fighters in Syria and Iraq. This threat is only likely to intensify in the coming months and possibly years, of course, a supportive factor for the defence space.

And with an array of other problem spots on the horizon — from China’s aggressive territorial claims across South-East Asia and Russia’s rumoured action in Ukraine, through to the likelihood of fresh engagement in other Middle Eastern and North African countries — the US is likely to keep splashing the cash to keep its ammo dumps and aircraft hangers well stocked.

4.4

BAE Systems, like the rest of its listed defence peers, has long been a favoured stock pick for those seeking reliable dividend growth.

The business has lifted the full-year payment at a compound annual growth rate of almost 6% during the past five years, and although recent top-line pressures are expected to reduce earnings during the medium term at least, BAE Systems’ tremendous cash-generative qualities are expected to keep dividends ticking skywards.

City brokers currently expect the firm to lift last year’s 20.1p per share payout to 20.3p in 2014, a projection which creates a meaty yield of 4.4%. By comparison the rest of the FTSE 100 carries a forward average of just 3.4%.

And an expected further rise, to 20.8p per share, for 2015 drives the yield to an even more appetising 4.5%.

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Royston Wild 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.