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Defence contractors like BAE Methods (LSE:BA.) usually 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 steady no matter broader financial situations.
In reality, 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 (doubtless) strengthen, no less than over the close to time period.
Additional development anticipated
My optimistic take is shared by Metropolis analysts. Because the desk under reveals, dividends on BAE Methods shares are tipped to maintain rising by way of 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 nicely coated by anticipated earnings over the interval, too. So even when income are blown off target — for example, by provide chain points or challenge supply issues — the corporate may nonetheless be in fine condition to fulfill dealer forecasts.
Dividend cowl rings in at 2.1 instances for every of the following two years, beating the extensively regarded minimal degree of two instances that buyers crave. This could give the corporate the pliability to fulfill payout forecasts whereas additionally persevering with to speculate for development.
Sturdy foundations
That’s to not say I’m anticipating income 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 e book — the corporate’s order backlog rose £8bn final 12 months, 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 may name upon to develop dividends consistent 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 worth has had a adverse affect upon the corporate’s ahead dividend yields. For the following two years they sit a way under the FTSE 100 ahead common of three.5%.
Nonetheless, I imagine the prospect of speedy, inflation-beating payout development within the years forward makes the inventory price critical consideration for passive earnings.
There are hazards the corporate could face additional down the road. Notably troubling is the prospect that US defence spending will fall below President Trump’s effectivity drive. The US is the corporate’s largest single market.
However on stability, I believe BAE Methods shares are a particularly enticing choice for each development and dividend buyers, supported by surging defence spending by non-US NATO nations.
