If you are looking for somewhere to invest £2,000 right now, I highly recommend taking a closer look at the BAE (LSE: BA) share price. I reckon this company has the potential to produce a steady income stream for investors for decades to come.
Its large order backlog and multi-decade contracts also put the company in a strong position to weather economic uncertainty in the years ahead. Today, I’m going to take a closer look at this FTSE 100 income champion.
BAE share price on offer
With the second wave of coronavirus building around the world, I think investors need to be careful in the current environment. However, it may be a lot easier to pick winners the second time around.
Indeed, some companies managed to navigate the first wave relatively well. They’ve gone on to yield market-beating returns for shareholders.
The BAE share price is one of these winners. Year-to-date, the stock has outperformed the FTSE 100 by around 10%, including dividends.
Investor sentiment towards the defence contractor soured and the beginning of the year, after management decided to slash the group’s dividend to preserve capital. Luckily, the dividend drought only lasted a few months. At the end of July, BAE reinstated a 13.8p-a-share £460m payout deferred from April. The firm also declared an interim dividend of 9.4p a share.
The coronavirus crisis has had only a limited impact on the business. Half-year sales rose by almost 5% to £9.8bn. Due to a reduction in productivity due to social distancing, underlying earnings fell more than 10% to £895m in the first half of 2020.
Still, the firm is expecting sales to grow around 5% for the full year, thanks to the impact of two large US acquisitions. This growth should help support the BAE share price.
I expect this growth trend to continue. Despite the coronavirus crisis, defence spending is only growing around the world. The world’s military spending grew by 3.6% year-on-year to surpass $1.9 trillion in 2019. That’s the highest level this decade. Threats from Russia and China are forcing Western Nations to increase defence capabilities. While this might be bad news in terms of global peace, it’s relatively good news for the defence industry.
As such, I’m optimistic about the outlook for the BAE share price. Over the past few months, the organisation has proven it can weather the economic uncertainty and global shutdowns bought in due to the coronavirus crisis. What’s more, the company’s near-5% dividend yield is highly attractive in the current interest rate environment.
As the stock is trading at a forward price-to-earnings (P/E) multiple of just 13, the shares also seem to offer a wide margin of safety at current levels. Therefore, considering the company’s outlook, dividend income and defensive growth potential, I think it could be worth buying the BAE share price as part of a diversified portfolio today.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.