One of the main considerations as to whether any stock is a good stock to buy is your investment strategy. Specifically, are you looking for short, medium or long term gains? Or are you investing for dividends? BAE Systems stock is potentially a great investment for the right strategy.
BAE Systems has a strong history of profitability and dividend payments which is makes it an attractive option for dividend investors and long term holders. But is it a better option than Apple, Tesla or, dare I say it, a crypto such as JasmyCoin?
Key considerations for BAE Systems
The company has a slight reliance on military contracts, which can be subject to political and economic uncertainties.
When planes with BAE parts crash (so nearly all planes), it can impact share price a lot.
BAE Systems has a large pension deficit, which is something to keep an eye on.
BAE also has some large environmental issues which are being addressed, but it is something to consider. The future of aviation will undoubtedly need to become more sustainable which opens up the possibility of loss in market share to a competitor.
If a big BAE Systems client is in trouble, this can also impact their share price due to the possibility of them losing an important client. It would be worth researching some of BAE’s largest clients.
Lastly, BAE Systems is a large, complex company with many moving parts. This can make it difficult to understand the business and what is driving profits/losses. Assets, debt structures, client contract complexities , etc. can all make it difficult to understand what is going on beneath the surface.
Current performance of BAE Systems
BAE Systems is currently performing well, despite all of the global economic issues, including rising inflation and huge supply chain issues.
The company recently announced (28th July 2022) a new share buyback program which will see them buy back shares to the tune of £1.5b or $1.8b. They have also announced they will be raising interim dividends by 5% due to higher than expected half year profits.
BAE Systems have raised dividends every year since 2016 and any company doing this is one to take a closer look at. To raise dividends so consistently and by 5% suggests they are extremely confident in their performance and have a strong outlook.
The share price has increased by around 50% over the last 5 years which is a great return, especially when you compare it to the S&P 500 index which is up just 20% over the same period.
I’m a little concerned about BAE Systems net debt hovering around £3.2b but they do have net fixed assets of around £6.6b and a turnover of £19b so £3.2b in debt is only a small red flag.
If you’re a dividend hunter, this is a great stock for you.
I’d even be tempted to think about a medium to long term strategy with BAE Systems performing so well (especially in these market conditions, which is the most impressive thing).
What do you think? Is BAE Systems a good stock to buy right now? Or has it already gone too high?