- The total returns investment case is crucial
- Inflation means a need to assess the ability to grow, not just sustain, pay-outs
In turbulent times many investors will look more closely at the dividend, seeking security, scope for steady growth and as close to a real return as possible as inflation climbs. None of the companies analysed this week has a serious threat to paying a dividend, but yields are not high, may not rise and poor total returns often counteract income.
BAE Systems (BA) – there are few real winners in war, but defence contractor BAE System has seen its share price rise more than a quarter since Ukraine was invaded. The gains are not likely due to increased spending (it will happen away from BAE’s core markets), but rather a revision of whether defence stocks are still pariah through the lens of ESG. However, not all investors agree and the extent of a fair re-rating is contentious. If trading is less affected, pressure on BAE’s resources to fund interest, capital spending, expansion and dividends may only marginally improve. The dividend may become more affordable, but the yield has dropped from c. 5 per cent to nearer 3 per cent, losing a key reason for considering this stock.