I’ve had BAE (LSE: BA.) shares and SSE (LSE: SSE) on my watchlist for years. I’d happily have bought them at any time, but two things stopped me.
First, I’ve been distracted by all the dirt cheap, super-high-yielders on the FTSE 100, such as Legal & General and M&G. Second, I simply don’t have the money to buy every stock that catches my eye. Who does?
So many stocks to choose from
Now I wish I’d bought them both, having just taken a look at their share price performance.
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Measured over three years, shares in FTSE 100 defence manufacturer BAE Systems have climbed a thumping 85.12%. They’ve dipped slightly over the last month, but are still up 23.27% over the last year.
If I’d invested £5,000 in BAE three years ago, it would have grown to £9,256 today, and I’d be a happy investor. In fact, I’d be even happier, as I’d also have got around £750 in dividends, lifting my total return above £10k.
Power giant SSE has also done well, its share price up 51.91% over three years. That would have turned £5k into £7,596. With dividends of roughly £800 over three years, my total return would be near £8,400. In total, my £10k would now be worth around £18,500, such is the power of investing (successfully) in shares.
I could drive myself mad by looking at all the winners I didn’t buy. I have to remind myself that I avoided buying plenty of losers too. Forget what-might-have-beens, the only question that counts now is should I buy BAE and SSE shares today?
Both shares have benefited from powerful economic and geopolitical trends over the last few years. As a weapons maker, BAE’s products have been in demand, as the world stocks up for the next round of conflicts.
SSE’s revenues have been boosted by surging energy prices following Russia’s invasion of Ukraine. Climate change is also driving company policy, as it pursues a net zero-friendly shift towards renewables. Neither war nor global warming seem likely to abate in the years ahead, so these tailwinds will (sadly) continue.
They look like buys to me
BAE recently maintained its full-year guidance for 5% to 7% growth in underlying earnings per share, with free cash flow of more than £1.2bn. It also benefits from signing long-term contracts, but there’s a downside to this. Their real value is difficult to predict as over lengthy timescales, rising costs and unexpected hiccups derail the most promising forecasts. There will always be shocks in any system.
SSE has just posted a 65% increase in adjusted operating profit to £2.53bn, but with a reported loss of £146.3m, due to adverse fair value movement on derivatives. Its has to invest huge amounts of capital into building its energy infrastructure, which eats into profits and recently forced management to rebase its dividend.
Today, BAE is forecast to yield 3%, with the dividend covered twice by earnings. The stock is valued at 17.1 times earnings. SSE has a forecast yield of 5.2%, covered 1.5 times, and is valued at 11 times earnings.
I’m still keen to buy both these stocks, but two things are stopping me. First, I can’t buy everything. Second, those dirt cheap FTSE 100 high yielders are too tempting…
