FTSE 100 defence group BAE Systems (LSE: BA) hasn’t cut its dividend for 30 years. Can shareholders expect further growth in 2024 and 2025? Let’s take a look at the latest dividend forecasts.
A top income choice
In 1993, BAE paid a dividend of 1.75p per share. Over the last 12 months, the company has paid out 28.1p per share. That’s an increase of about 1,500%, or an average annual growth rate of around 10% for 30 years.
BAE’s record as a FTSE income champion is well established, but the company hasn’t always delivered consistent growth.
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The long-term nature of many of the group’s contracts means that year-to-year progress is sometimes uneven.
There have also been various cliffhanger situations over the years, where BAE has been at risk of failing to secure large aircraft or shipbuilding contracts.
However, world events over the last two years are expected to drive a sustained increase in defence spending by western governments. The outlook for BAE seems fairly strong.
City analysts covering the company have increased their 2024 earnings forecasts by around 10% over the last year.
This strong momentum is likely to mean that BAE’s dividend remains well supported, in my view.
BAE: latest dividend forecasts
The latest broker forecasts for BAE Systems suggest that shareholders can expect dividend growth in both 2024 and 2025.
Here’s a summary of the latest numbers and the potential dividend yield for this FTSE stalwart:
| Forecasts | Dividend per share | Dividend yield |
| 2024 | 32.0p | 2.7% |
| 2025 | 34.9p | 2.9% |
There are a couple of things that I would take away from these numbers.
The first point is that BAE’s dividend growth is expected to continue. This year’s forecast payout of 32p per share is equivalent to a 7% increase on the 30p payout expected for 2023.
The second thing I’d mention is that BAE’s share price has doubled over the last two years. This is why the company’s dividend yield is now quite low – well below the FTSE 100 average of 3.8%. This is unusual for BAE, in my experience.
A stock to buy now?
My research suggests that the last time BAE’s dividend yield fell below 3% was in 2007, when markets peaked ahead of the 2008 financial crisis.
I’m not suggesting that a crash is likely today.
But I’ve been following this business for the last decade, and it’s always been a mature and relatively slow-growing company.
Today’s valuation suggests to me that the market is expecting a new era of stronger growth.
That could be the right view to take, given external events.
But with BAE shares now trading on 18 times 2024 forecast earnings, I think the margin of safety on valuation is much smaller than it used to be.
I suspect that any shortfall in profits would cause a sharp sell off.
Perhaps I’m being too cautious. I think BAE could continue to do well for the foreseeable future.
But as an income investor, the valuation doesn’t quite add up for me at the moment. I plan to wait for a better opportunity to buy.
In the meantime, I think there are attractive choices elsewhere in today’s market.
