Picture supply: Getty Pictures
Defence contractors like BAE Methods (LSE:BA.) typically show to be nice dividend shares to carry over the long run. This specific FTSE 100 operator has grown its annual dividend yearly since 2012.
It’s lengthy report of payout development displays BAE’s market-leading place and the resilient nature of defence spending. Demand for weaponry and associated {hardware} stays broadly secure no matter broader financial circumstances.
Actually, the outlook for defence spending is stronger now than it has been for many years. And so holders of the Footsie firm can realistically count on dividends to continue to grow as gross sales (possible) strengthen, a minimum of over the close to time period.
Additional development anticipated
My optimistic take is shared by Metropolis analysts. Because the desk beneath reveals, dividends on BAE Methods shares are tipped to maintain rising by to the tip of 2026:
| Yr | Dividend per share | Dividend development | Dividend yield |
|---|---|---|---|
| 2025 | 35.92p | 9% | 2.2% |
| 2026 | 39.50p | 10% | 2.5% |
Encouragingly for buyers, these dividend projections are effectively lined by anticipated earnings over the interval, too. So even when earnings are blown off target — as an illustration, by provide chain points or undertaking supply issues — the corporate may nonetheless be in good condition to satisfy dealer forecasts.
Dividend cowl rings in at 2.1 occasions for every of the following two years, beating the broadly regarded minimal stage of two occasions that buyers crave. This could give the corporate the pliability to satisfy payout forecasts whereas additionally persevering with to take a position for development.
Sturdy foundations
That’s to not say I’m anticipating earnings to disappoint over the following couple of years. BAE Methods’ gross sales and working revenue rose 14% and 4%, respectively, in 2024, to £26.3bn and £2.7bn.
With a powerful order guide — the corporate’s order backlog rose £8bn final yr, to £77.8bn — the enterprise has sturdy earnings visibility over the interval too.
On high of this, the FTSE 100 firm has appreciable monetary sources it might probably name upon to develop dividends in keeping with forecasts. Free money circulation stays sturdy and was a formidable £2.5bn in 2025, helped by sturdy buyer advances and spectacular operational money conversion.
BAE’s £1.5bn share buyback programme (as a consequence of full in 2026) underlines the robustness of its stability sheet.
A high purchase?
BAE Methods’ hovering share price has had a detrimental affect upon the corporate’s ahead dividend yields. For the following two years they sit a way beneath the FTSE 100 ahead common of three.5%.
Nonetheless, I imagine the prospect of fast, inflation-beating payout development within the years forward makes the inventory value critical consideration for passive revenue.
There are hazards the corporate might face additional down the road. Notably troubling is the prospect that US defence spending will fall beneath President Trump’s effectivity drive. The US is the corporate’s largest single market.
However on stability, I believe BAE Methods shares are an especially engaging choice for each development and dividend buyers, supported by surging defence spending by non-US NATO nations.