BAE Systems – A Good Value Defensive Stock?

 
This month, I am intending to buy more shares of BAE Systems (BA. on the LSE). It’s one of the largest companies in the UK and is a pretty solid dividend payer. I’ve already got 37 shares, so I am hoping to pick up another £100+ worth before it goes ex-div on 23rd October.

Why BAE?

First of all, who are they? From their website:
BAE Systems is a global defence, aerospace and security company, delivering a wide range of products and services for air, land and naval forces, as well as advanced electronics, security, information technology and support services. With some 84,600 1 employees in six continents, we work together with local partners to develop, engineer, manufacture and support the innovations that increase defence sovereignty, sustain economies and safeguard commercial interests.

1 Including share of equity accounted investments

Nearly 85k employees. Woah. That’s a lot. But more importantly, from their website, we can find out:

  • they are a sound company in a necessary sector;
  • they have 12 years’ worth of increasing dividends;
  • If you look at their site, they have a great investor page which shows their dividend history back to the 90s. As you can see, it’s solid;
  • The yield is currently ca. 4.6% – pretty nice, if I do say so myself.

If you want more detailed information, their half-yearly report is available here on the London Stock Exchange website. It looks really good. Plenty of orders, stable income. Not too much debt.

Global Conflict Has Helped Share Price Increase

With geopolitical tensions in various parts of the world at a heightened state right now, the share price has appreciated at least 5% since I bought my existing 37 years earlier this year. Of course, this can go up and down, but the critical factor for me is not price but value.

What do you think? Is BAE Systems a good value share to buy right now?

8 Comments

  1. Thanks for sharing an LSE stock purchase. Being in the U.S. we really are not that exposed to stocks outside our borders let alone Canadian companies or even U.K. based stocks. I have heard of BAE but do not know much about them. From the description seems like a very solid long term play from a solid long term company. Thanks for highlighting a great stock that otherwise flies under many U.S. based portfolios.

    1. Hi DivHut, thanks for visiting. UK stocks are pretty cheap right now, we also just had 200 points wiped off the FTSE 100 AND the £ has dropped against $, making things even cheaper. I think there are a lot of bargains to be had right now. There is major talk over the grocery sector (supermarkets) due to Tesco’s profit warning. I am long Sainsbury’s and I am considering opening a position in Wm. Morrison’s too.

      Check out Dividend Life’s webpage for a link to a UK stock screener we’re trying to develop (when we get a chance away from our busy lives!) we’re doing it like David Fish’s dividend champions/aristocrats/contenders/challengers/etc.

      Best Wishes,

      M

  2. Oh, I see their company advertising on TV lately, especially on news and business channels. I guess they want to market their brand better, or the perception of their company. I would like to think we’ll all have world peace in the near future so I don’t really look at defense companies.

    1. I would also like to think that world peace is imminent, but I do not foresee it happening, unfortunately. I don’t usually look to defence companies that much, but even if the world was more peaceful, I am sure one would still need some kind of defence against random extremists… also the kind of R&D these companies produce is really important to science, so if we had world peace, I expect some of the companies would essentially become giant scientific research companies…

      Thanks for visiting Henry,

      Cheers!

  3. Hi M,

    I drive past a large BAE building every day on my way to work, so at least some of those 84K employees are over here!

    I do tend to like defense stocks – it’s a market that has some high barriers to entry for newcomers, and governments are always going to want to spend money on defense. That said of course, here in the US there have been several rounds of military budget cuts. I own shares in Raytheon – they invented the microwave so that’s reason enough in my book 😉

    I don’t know much about BAE as a stock to be honest. I would say that I’d be keeping an eye on their current P/E of 80+ and dividend payout ratio of 340%; it looks like earnings are down quite a bit from those numbers. A 4.6% yield is certainly attractive though and nice to have!

    1. Hi DL,

      Yes, I assumed that some of the employees would be in the States, but don’t really know too much detail. I know they have some in the Middle East too.

      I have never bought a defence stock before, but I have been looking at BAE for a while, and also Raytheon have cropped up too. I am keeping my eye on them also…

      With regards to BAE’s fundamentals – I am watching them too of course, but the figures vary from website to website. As you know, I use several websites to do reccies on my shares. These three I use a lot:

      iii.co.uk has P/E of 89.538 and a yield of 4.317%
      morningstar.co.uk has a P/E of 14.33 and a yield of 4.23%
      digitallook.com has a P/E of 12.3 and a yield of 4.4%

      I have no idea why iii is listing the P/E as almost 90, when the others aren’t… but either way, I feel that there is value in the stock, even though the price is now 9.72% higher than in July, when I bought my first 37 shares.

      Thanks for popping in Trevor,

      Cheers!

  4. I saw “LSE” and my eyes lit up!!! But then I realized you meant London Stock Exchange, not the London School of Economics 😛

    That’s where I studied when I was living/studying in the UK for my grad degree 🙂 I remember the director resigned because there was some connection to Libyan/Qaddafi money since his sons attended the school and stuff when the US+UK+West started bombing Libya in 2010/2011.

    At one moment good donor and friend dictator – and then suddenly an evil dictator and tainted money. Funny how quickly fashions can change!!

    Also, great review on BAE!

    1. My spouse also did a degree with LSE, what a coincidence!

      I remember that whole debacle with Gaddafi… you know he was also involved in education reform. The government was about to sign a deal to get every child one of those basic laptops that cost $99 or something like that, but then at the very last minute, Gaddafi literally changed mind in the snap of a finger… completely unexpectedly.

      These dictators are so weird… I don’t believe every “dictator” is bad though. And some who are not dictators in the traditional sense, really are de facto dictators (Putin!).

      Thanks for stopping by, as always: TA!

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