As stock markets crash, here’s 1 FTSE 100 dividend stock to buy now

Paul Summers — Thu, 24 Feb 2022 12:30:58 +0000

As stock markets crashed this morning, there aren’t many places for investors to hide. One exception is FTSE 100 defence giant BAE Systems (LSE: BA). Somewhat predictably, its shares are firmly in positive territory. Regardless of what happens next in Eastern Europe, I think this remains a great stock to hold for the passive income it generates.

Results

Although unlikely to be the main catalyst for today’s rise in the share price (+5%, as I type), it’s worth touching on today’s unintentionally well-timed full-year results.

At £21.3bn, sales rose by 5% in 2021. Underlying earnings moved 13% higher to £2.21bn. Positively, the company also reduced its net debt pile down to £2.16bn from £2.72bn the year before. This is something I particularly like to see any company doing, even though I doubt this burden has caused investors any sleepless nights.

On a statutory basis, revenue rose slightly to £19.5bn and operating profit jumped by almost 24% to £2.39bn. BAE’s order book decreased slightly to £35.5bn.

As a whole, I see all this as a decent set of numbers from the FTSE 100 giant. Then again, I strongly suspect the share price would have moved higher today anyway.

Dividend delight

Looking ahead, BAE said it expected total sales to grow between 2% to 4% in 2022. Encouragingly, roughly 75% of these are “already in the order backlog“.

Out of interest, its Maritime and Cyber & Intelligence divisions are likely to experience the biggest rise in sales. The latter comes as no surprise to me considering yesterday’s report from the Department for Digital, Culture, Media and Sport. It stated the UK cybersecurity sector achieved double-digit growth last year. As I’ve stated previously, I believe this will be one of the biggest investment themes of the next decade.

Importantly for income hunters, the FTSE 100 member said free cash flow in 2022 was now likely to be “in excess of £1bn“. That should mean that the dividend stream — BAE’s biggest attraction, in my opinion — should be just fine.

Speaking of which, BAE announced a final dividend of 15.2p this morning. This brings the total cash return for FY21 to 25.1p per share. At the current share price, that equates to a trailing yield of 4%. Although nothing is guaranteed, analysts have the company hiking the dividend by another 5.5% this year.

Safe haven?

The invasion of Ukraine by Russian forces is clearly worrying at a human level. Seen purely from an investment perspective however, there are certainly worse places to park my capital than BAE Systems.

This is not to say the shares won’t experience some volatility in the weeks and months ahead. When times are tough, traders exit first and ask questions later. And right now, there’s no telling when this stock market crash will end. That’s hard to endure as an investor, even if it may lead to some great buying opportunities.

In addition to this, I should mention that the BAE share price is barely higher today compared to where it was five years ago. As well as going some way to justifying the stock’s relatively low valuation (12 times earnings), this also shows just how important those dividends are to the investment case. Without them, I’d be far less inclined to invest, as good as the aforementioned growth prospects for its cybersecurity arm are.

The post As stock markets crash, here’s 1 FTSE 100 dividend stock to buy now appeared first on The Twelfth Magpie.

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Paul Summers owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 bargain FTSE 100 stocks to buy in 2022

Stuart Blair — Mon, 20 Dec 2021 07:39:04 +0000

The FTSE 100 is full of established UK companies, and while it has a reputation for being boring in comparison to US tech stocks, but boring can also mean bargains. These two FTSE 100 stocks have fallen back recently. But in both cases, business performance remains strong. As such, I think that both have significant upside potential heading into 2022.

A defensive FTSE 100 stock

BAE Systems (LSE: BA) is defensive in both senses of the word. Firstly, it operates in the defence and aerospace industry, and is one of the global market leaders. Secondly, due to several recurring contracts with governments around the world, revenues are fairly secure. This means that it normally holds up quite well in the event of a stock market crash. Even so, the BAE share price has fallen over 6% in the past month, a disappointing end to a year in which it has managed to rise around 8%. I feel this slight dip offers a great time to buy.

Indeed, in the forward guidance offered in the half-year report, things certainly looked positive. For example, the group said that it expected sales growth of 3%-5%, and underlying EBIT growth of around 7%. This has also been forecast based on an exchange rate of $1.35 to £1. However, in recent months, the pound has weakened, and the exchange rate is currently $1.32 to £1. This should benefit BAE, because it earns a significant amount of revenue in US dollars yet reports in British pounds.

I am also tempted by the company’s dividend, which rose another 5% this year. As such, it currently yields close to 5%, far higher than other FTSE 100 stocks. A recent share buyback programme of £500m also demonstrates that it’s in a strong financial position.

As such, although there are the risks of inflation, and the fact that government defence spending is not increasing at a similar rate, I still believe that BAE is well-equipped to deal with these. I may add more BAE shares to my portfolio at its current price.

Paper and packaging company

Mondi (LSE: MNDI) is another FTSE 100 stock that has dipped recently, falling by around 12% in the past three months. Over the past year, it is up 7%, however. But I still think the stock is too cheap.

Indeed, the company has been performing well this year. This included revenue for the first half of the year rising around 5% to over €3.6bn. Further, in the most recent quarter, underlying EBITDA was up 27% from the previous year, reaching €388m. This signals that there is significant demand for Mondi’s products, which are recognised for their sustainability. So, as e-commerce continues to rise in popularity, I feel that demand will increase further.

There are some risks, however. For example, the company has recently highlighted rising costs due to inflationary pressures. There are also planned maintenance costs for the fourth quarter of 2021, and although these will hopefully benefit Mondi in the long term, this is likely to have a substantial impact on profitability in the short term. Nonetheless, I see these as short-term issues, and I’m generally optimistic. Therefore, I may also add more Mondi shares to my portfolio in the new year.

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