I don’t have unlimited reserves of cash to invest in UK shares. But BAE Systems (LSE:BA.) is a FTSE 100 dividend share I’d like to add to my portfolio, when I have money to invest.
The defence giant was one of the index’s biggest risers in 2022. It soared 57% in value as the war in Ukraine fuelled expectations surrounding countries’ arms spending.
I’m confident that BAE Systems’ profits will grow strongly as the importance of strong defence rises among Western nations. This means the business could also be a solid pick for long-term passive income.
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Multiple threats
Russia’s invasion last year highlighted the increasingly fraught geopolitical landscape. But foreign policy inside the Kremlin isn’t the only thing that’s worrying BAE Systems’ key customers.
China has long been a concern for the US and the UK. In particular, fears over its intentions for Taiwan and expansion in the South China Sea have occupied Western governments. The shooting down of Chinese balloons over North America this month has raised the temperature still further.
On top of this, speculation over North Korea’s and Iran’s military intentions continue to occupy attention. Meanwhile, the drive to eradicate global terrorism rolls on.
These factors helped push total worldwide arms spending to record highs above $2trn in 2021, according to the Stockholm International Peace Research Institute. Another hefty annual increase is anticipated for 2022 when the body next reports in the spring.
Robust results
BAE Systems’ bumper full-year results reinforce expectations of another big jump in annual spend.
In 2022, the company enjoyed a record order intake of £37.1bn, a result that propelled its order backlog to £58.9bn. This included a bumper contract to build five more Type 26 frigates for the Royal Navy.
For chief executive Charles Woodburn, demand for the company’s boats, subs, planes and other hardware is likely to keep on rising too. He told investors that “we expect continued momentum in the medium to long term as governments replenish stocks, recapitalise equipment and support allies.”
Revenues, underlying earnings and free cash flow all improved at BAE Systems last year. And this — combined with its robust market outlook — prompted the firm to lift the annual dividend to 27p. This was up almost 8% year on year.
The bottom line
Earnings at BAE Systems have suffered in the past due to project delays. But the business has still proved a reliable long-term profits generator. And this has paved the way for an impressive long-term dividend policy.
The business has raised the annual payout for 19 straight years. It underlines the resilience of defence spending even during deep economic downturns. And it illustrates the strength of the relationships it’s built with major spenders the Pentagon and the Ministry of Defence.
BAE Systems could be one of the best FTSE stocks to buy for reliable dividend growth. And I believe now could be a great time to add it to my portfolio.
