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BAE Systems (LSE: BA) shares have soared this year. Since I hold the FTSE 100 defence contractor in my self-invested personal pension (SIPP), its success has been a joy to watch. Especially given the mayhem elsewhere.
This follows an underwhelming 2024. I bought the stock just before last year’s dip (frustratingly), but I’m not complaining now.
The BAE Systems share price has been one of the UK’s star performers in 2025. Since markets opened in January, the shares have climbed an astonishing 48%.
That means a £10,000 investment just a few months ago would now be worth £14,800. Not bad at all.
Can this FTSE 100 stock keep flying?
Interestingly, over a full 12-month period, the shares are ‘only’ up 30%. That reflects last year’s drop.
The only reason I could see for the shares falling is that they had raced a little ahead of themselves. News that Europe has to step up and spend more money on defence to please Donald Trump and deter Vladimir Putin gave investors a new reason to buy.
Positive 2024 results, published on 19 February, gave them another incentive. Sales rose 14% to £28.3bn, with underlying profits up the same percentage to top £3bn.
Order backlog hit a record £77.8bn, which the CEO Charles Woodburn called “exceptional” for its visibility.
Inevitably, Trump’s trade tariffs could cause headaches. BAE kit often combines components from US firms, and if cross-border supply chains get snarled up, things could get messy.
BAE is investing in more US-based manufacturing but that’s expensive and might prove unnecessary if Trump relents. There are reports of an early UK trade deal, which may give the stock another boost.
The US dollar is another worry. Nearly half of BAE’s revenues come from the US, and if trade wars hit the greenback, as some suspect, those earnings could take a hit once converted into sterling. A mere five cent drop in the dollar can knock £525m off sales, so this matters.
Growth, dividends and buybacks
After the recent rally, the shares are trading at around 25 times earnings. That’s on the high side, but not outrageous. Anyone considering the stock today should understand that the biggest gains may already have been made.
The biggest wildcard is peace. A genuine, lasting resolution in Ukraine would be welcome news for the world, but potentially bad news for BAE’s order pipeline.
Frankly, it seems as far away as ever.
BAE isn’t a huge dividend payer. The current trailing yield is just 1.94%, well below the FTSE 100 average of around 3.6%. However, that’ partly because the share price has been rising so strongly. It’s up 207% over five years.
The board has a progressive dividend policy. It raised its payout by 10% in its 2024 results. The company returned nearly £1.5bn to shareholders via dividends and share buybacks last year.
I think BAE Systems remains a core part of a balanced portfolio of FTSE 100 stocks. But investors considering the stock should exercise a little caution. After the strong run, things could slow for a while. Just like they did last year.
