Buying quality FTSE 100 shares can deliver a brilliant blend of capital gains and dividend income over the long term. With this in mind, here are a couple of my favourite blue-chip shares to consider today.
BAE Systems
Defence stocks like BAE Systems (LSE:BA.) are typically considered classic defensive investments rather than exciting growth shares. The long record of dividend growth at this particular weapons builder (dating back to 2011) illustrates the predictability of its earnings from year to year.
But the entire defence sector’s profits outlook has been transformed since Russia invaded Ukraine three years ago. BAE’s order backlog rose £8bn in 2024 to end the year at record highs of £77.8bn. This means City analysts expect earnings here to keep growing strongly.
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Analysts tip bottom-line rises of 12% and 11% for 2025 and 2026, respectively.
Against this backcloth, dividends are perhaps unsurprisingly tipped to keep growing as well. So the dividend yields on BAE Systems shares are a solid-if-unspectacular 2.2% for this year and 2.4% for 2026.
With Europe embarking on substantial rearming not seen for decades, major weapons contractors like this have a terrific opportunity to supercharge earnings. BAE is a major supplier to continental armed forces, especially the UK, which accounts for 26% of annual revenues.
Be mindful, however, that the company also makes more than four-tenths (44%) of turnover from the US. This also therefore leaves it vulnerable to falling defence spending Stateside under President Trump’s drive to improve efficiency.
Today the BAE Systems share price commands a higher-than-normal price-to-earnings (P/E) ratio of 22.3 times. I’m confident it can continue to climb in value, though remember that that premium rating could prove the share price’s undoing if group revenues appear under threat.
Sage
Tech shares rarely earn a reputation as lucrative dividend stocks. These companies typically reinvest any excess capital for growth rather than distributing it to shareholders.
But Sage (LSE:SGE) — which makes software for accounting, payroll, and HR functions — has proved a decent passive income share to buy down the years. Thanks to excellent cash generation, dividends here have grown every year since 2012.
City analysts expect this strong record of continue over the near term at least, too. So Sage shares throw up dividend yields of 1.9% and 2% for the financial years to September 2025 and 2026, respectively.
Forecast earnings growth of 13% and 14% for these years supports these predictions
Be aware, however, that — like that of BAE Systems — Sage’s share price trades on an elevated P/E ratio, at 27.8 times. While meaty valuations are typical for high-growth tech shares, this might still leave the company vulnerable to a price correction if news flow worsens, for instance if cooling economic growth dampens business spending.
Yet I’d expect Sage’s shares (which are up 114% over the past five years) to rebound from any weakness over the long term. Ongoing corporate digitalisation should mean demand for its products jumps from current levels. I also like the early successes the company’s having in the fast-growing field of artificial intelligence (AI).
