Here I want to talk about three specifically, and what makes them such formidable passive income providers. The names in question are BAE Systems (LSE:BA.), Standard Life (LSE:SDLF), and Seven Trent (LSE:SVT).

Let’s take a look.

Dividend quality

Each of these firms enjoys strengths that make them perfect dividend powerhouses. With BAE Systems, these factors include:

• A focus on defence, where long-term demand remains stable.
• Tier 1 supplier status with huge defence spenders (including the US and UK).
• Huge barriers to entry, which limits competitive threats.
• A diverse product range, protecting profits from slowdown in one or two areas.
• Growing geopolitical uncertainty, which is driving global defence budgets.

Standard Life has its own distinct set of advantages, such as:

• Capital-light operations and a focus on acquiring ‘closed’ life insurance and pension policies.
• Predicable cash generation from in-force policies and investment returns.
• Asset portfolios that are tightly hedged against interest rate moves.
• Robust capital reserves (its Solvency II ratio today is 176%)
• Strong growth in the retirement and savings markets.

Great records

Severn Trent, meanwhile, benefits from:

• Operating in an ultra-defensive industry (water supply).
• A monopoly in the Midlands region of the UK, eliminating competitive dangers.
• Multi-year regulatory periods that provide long-term earnings visibility.
• A strong record of operational efficiency, limiting costs.
• A growing asset base that leads to increased dividends.

So how have these qualities translated into dividends down the years? Let’s take a look.

Over the past decade, dividend yields have beaten — or been at the upper end of — the FTSE 100 average of 3%-4%. Standard Life’s yield has delivered a yield roughly double that level.

These FTSE stocks have also navigated major shocks to keep growing their dividends. During the Covid pandemic, for instance, they continued raising payouts, a period when roughly half of Footsie companies experienced some disruption.

Can they keep delivering?

But here’s the thing. Past dividend performance isn’t always a reliable guide to future. With BAE Systems, earnings could suffer if defence-related supply chain issues worsen, impacting dividend growth.

Rising competition in pensions and annuities might hit Standard Life’s future payouts. And as for Severn Trent? The company’s profits could take a hit if interest rates rise and borrowing costs shoot up.

However, no share is without risk. And on balance, I fully expect these FTSE 100 stocks to keep offering excellent dividend yields and payout growth. Their resilient business models and strong cash generation make them excellent income shares to consider.

The post How do these FTSE 100 stocks keep paying brilliant dividends? appeared first on The Twelfth Magpie.

The firm has continued to post strong results, characterised by surging orders, earnings and cash flow. It is embedded in some of the world’s most strategically important defence programmes.

Yet despite all this, the shares still look materially undervalued when compared with the company’s international peer group. And this disconnect has only widened after a recent 14% dip in price.

So, is now the time for me to add to my holding?

How do the valuations stack up?

Despite its price gains over the last few years, BAE’s price-to-sales (P/S) ratio of just 2.2 is bottom of its peer group.

This comprises RTX at 2.7, L3Harris Technologies at 2.8, Rolls-Royce at 4.4, and TransDigm at 7.4. The average P/S of these firms is 4.3, so BAE is very cheap on this basis.

It also looks a bargain on its 5.4 price-to-book ratio compared to its competitors’ average of 13.8. And it still looks cheap at a price-to-earnings ratio of 30.4 against a peer average of 31.6.

For a company of BAE’s scale, quality and strategic importance, that valuation gap looks difficult to justify. And for long‑term investors, that disconnect could represent a rare opportunity in a sector where genuine bargains are hard to find.

Is the core business strong?

Gains in any company’s share price are driven over the long run by sustained earnings (‘profits’) growth.

A risk to BAE is any major failure in one of its products that could prove costly to remedy and could damage its reputation. Another would be supply‑chain issues that might disrupt production schedules and push up costs.

Nevertheless, in the firm’s 2025 results, management said it expects 2026 underlying operating profit growth of 9%–11%.

And analysts forecast 12.1% average annual earnings growth to the end of 2028, at minimum.

What are the earnings growth drivers?

Those 2025 results showed underlying earnings before interest and taxes jumping 12% year on year to £3.3bn, highlighting improved operational efficiency and disciplined contract execution.

Both should continue to support strong margin expansion.

Meanwhile, sales rose 10% to £30.7bn, underlining strong momentum behind its long‑dated contract programmes. These include such programmes as the Eurofighter Typhoon, the Dreadnought‑class submarine, and space‑based missile‑tracking satellites for the US Space Force.

Underpinning all this was order intake of £36.8bn pushing the backlog to a record £83.6bn.

My investment view

NATO ex-US members have now pledged to lift combined defence budgets to 5% of GDP by 2035, up from around 2% last year. It is an increase worth around $423bn (£314bn) a year.

Meanwhile, the US defence budget reached approximately $919bn last year. There are proposals to raise this to around $1.5trn a year by 2027.

BAE is already integrated into the heart of key defence programmes relating to land, sea, air and space. And these mark a long-term structural shift toward boosting deterrence to deter aggression, rather than a temporary fix to short-term conflicts.

Consequently, I will be buying more of the stock very soon. And I have my eye on shares in other sectors that are also undervalued with strong earnings profiles.

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In the last decade, the FTSE 100 has delivered an excellent average annual return of 9.2%. That includes both capital gains and dividends. To put that into context, a £20,000 ISA investment in a tracker fund would have turned into £50,010.

But what about if investors had bought individual FTSE shares instead? Results will vary, with some underperforming the benchmark and others delivering superior returns. So which UK shares have surpassed the index?

Here are two that have, and that I’m confident will continue delivering spectacular returns.

Fantastic returns

Games Workshop (LSE:GAW) is one of the London stock market’s greatest success stories. It wasn’t even in the Footsie index 10 years ago, having been promoted from the FTSE 250 in December 2024.

So what’s behind the company’s success? Surging interest in fantasy tabletop gaming among hobbyists, and its leading position in the market. Warhammer is the industry’s gold standard, and commands a large and loyal fanbase across the globe. Sales have risen roughly 50% in the last five years alone. This has helped the stock deliver an average annual return of 46.9% since May 2016.

Can Games Workshop shares keep rising, though, as market competition increases? I’m confident they can, helped by the company’s plan to accelerate licensing activity with film and TV providers like Amazon. The best-selling Warhammer 40,000: Space Marine video game franchise illustrates how IP licensing can generate enormous royalties and stimulate sales of its miniatures.

Another FTSE 100 high flyer

BAE Systems (LSE:BA.) plays a vital role in Western defence. So as geopolitical instability has risen, and major wars in Europe and the Middle East have broken out, demand for its hardware has soared.

As a consequence, the company’s delivered an average annual return of 17.3% over 10 years. That’s approaching double what the broader FTSE 100 has provided. In that time, sales have rocketed and latest financials showed its order backlog at a record £83.6bn.

Can BAE shares keep up the pace, though? It may have some hiccups if supply chain issues worsen due to the Iran war, pushing up costs and hampering project delivery. But in this changing global landscape, I think there’s significant scope for further share price gains as defence budgets keep rising. As a critical supplier to multiple major NATO members, BAE’s in a stronger position than most to capitalise on this.

Generating ISA wealth

Past performance isn’t always a reliable guide to future returns. But, as I say, I’m confident Games Workshop and BAE Systems shares can keep on delivering for ISA investors like myself.

If they can replicate the returns they’ve delivered since May 2016, these FTSE 100 stocks will have turned £20,000 equally invested across them into £541,834 a decade from now.

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These companies make weapons. Fighters, destroyers, submarines, munitions, drones and much more besides. As geopolitical tensions rise by the day, their products are in demand. Both have massive order backlogs, more than £80bn in the case of BAE Systems, and around £10bn for Babcock, which is the smaller player. This gives them terrific long-term earnings visibility.

So why did these shares suddenly slump last month?

What’s gone wrong with defence stocks?

Rolls-Royce (LSE: RR) is a more complex case. It has a Defence division, but it’s main line of business is building and maintaining aircraft engines, while it also has big opportunities in power plants, data centres and small modular reactors, or mini-nukes. Yesterday (30 April), Rolls posted a terrific set of Q1 results. Its Civil Aerospace and Power Systems divisions grew strongly, while Defence posted a 20%+ increase in new equipment sales. The shares jumped 7.6% on the day, but Rolls-Royce still ended April down 7.56%.

As a benchmark, the FTSE 100 ended April roughly where it began. We can’t blame the defence stock slump on a wider downturn. So what can we blame?

This might be a case of investors buying the rumour, and selling the fact. Investors are forward looking. Now that war is staring us in the face, they’re looking for the next big opportunity. Also, the stocks have become expensive. The price-to-earnings ratios for BAE Systems and Babcock have nudged 30 in recent months. At one point, Rolls-Royce topped 60. Even after recent turbulence, their P/Es still look somewhat stretched:

• Babcock P/E: 26.9
• BAE Systems P/E: 28.1
• Rolls-Royce P/E: 44.4

These two factors may partly explain what’s going on. Also, many investors will be taking profits, and they will be big profits too. Just look at their five-year performance figures:

• Babcock: 280%
• BAE Systems: 298%
• Rolls-Royce P/E ratio: 958%

Are we looking at a brilliant buying opportunity?

Incredibly, these stellar numbers are after their recent share price slips. Personally, I think it’s pretty clear what we’re looking at here. A good old-fashioned buying opportunity for long-term investors.

Defence stocks were due a bit of a breather. No share or sector rises in a straight line. Investors may also be concerned that European countries won’t step up to the plate and spend more on defence, especially the UK.

I’m still worried about those valuations. There’s scope for further slippage if results disappoint. But investors who feel they don’t have enough exposure to the defence sector, or felt they’d missed out on the action, may now have the moment they were waiting for.

That doesn’t mean defence won’t fall further over the summer. But in my view, the buying opportunity is already upon us and worth considering.

The post What on earth’s happening to Babcock, Rolls-Royce and BAE Systems shares? appeared first on The Twelfth Magpie.

Take these three shares: Sage Group (LSE:SGE), BAE Systems (LSE:BA.) and Halma (LSE:HLMA). Between them, they’ve an aggregated almost 90 years of consistent dividend growth.

Want to know what still makes them five-star dividend shares to consider?

Sage — 35 years of growth

Dividends are never guaranteed for any stock. With Sage, its long history of payout growth could falter if the global economy implodes, taking corporate tech spending with it.

But what’s made it resilient to such shocks in the past? Its accounting, human resources and payroll software is essential for any business. This provides high-quality recurring revenues and cash flow, and makes it more resilient than most other tech shares. What’s more, its software isn’t especially expensive, which helps support a ‘sticky’ customer base even in tough times.

I’m optimistic Sage can keep delivering healthy dividend growth, as businesses increasingly digitalise their operations. I’m also encouraged by the FTSE company’s steps to embrace artificial intelligence (AI). The forward dividend yield here is 2.5%.

BAE Systems — 22 years of growth

Defence stocks are among the most reliable dividend payers out there. Their earnings are practically immune to broader economic conditions, given the importance of national security spending.

BAE Systems isn’t totally without risk though. With sovereign debt levels in the West rising, could governments have to cool spending on weapons? It’s possible, but it’s unlikely, in my opinion, as geopolitical instability grows. In fact, global defence spending rose at its fastest pace since the Cold War in 2025.

With strong government relationships, a diverse client base and market-leading technologies, BAE Systems looks in great shape to keep growing shareholder payouts. One final thing, its customer contracts tend to last for years, giving it excellent cash flow visibility for dividends. For this year, the forward yield is 1.8%.

Halma — 46 years of growth

Of this selection of FTSE 100 shares, Halma has the longest unbroken record of yearly dividend growth. Spirax is the only UK blue-chip stock with a better record (41 years of growth).

This is down to decades of consistent earnings progress, provided by a mix of healthy organic growth and contributions from bolt-on acquisitions. This has underpinned 22 straight years of record profit growth. That’s not all — with ultra high margins, Halma turns a huge share of these profits into cash it can then distribute to investors.

It’s also important to consider how Halma’s end markets have contributed to its resilience. The business sells safety, environmental and healthcare equipment which are often mission critical. The demand outlook for these technologies is strong, as safety and environmental regulations tighten across the globe, which bodes well for future dividends.

But remember that regulations could change later down the line, hurting sales. Halma’s forward dividend yield is 0.7%.

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But the reason this company has been able to really take advantage is simple – because they make some of the best stuff going. Be it fighters jets, submarines, or cybersecurity, BAE Systems is on the cutting edge of the latest technology. And that’s why the recent announcement of the Ascent spacecraft line intrigued me. Could a foray into the nascent field of space defence send the stock soaring even higher?

What is Ascent?

So what exactly is this new piece of kit? Essentially, it’s a vehicle for delivering payload to space. This could be putting small satellites into orbit where they can be used for military purposes. It can also be used for shifting satellites between orbits. The long-term goal is to be able to take stuff to and bring stuff back from the moon.

Perhaps the best way to explain the importance of this kind of application is through the conflict in Ukraine. Starlink technology has been vital to operations in the war. Coordinating satellite information with high-tech drones is valuable to both sides. The recent blocking of all Starlink devices on the Russian side has severely hampered activities on that end. The last few years have shown how important the dynamic use of these kinds of technology is in modern warfare.

It’s worth pointing out at this stage that investors may not feel comfortable here. This is a company that makes a profit from producing and selling weapons. I think it’s understandable for anyone to have any qualms about this as an investment decision.

Is the stock a buy?

How much impact could this have on the company? Well, it’s still in the early stages. No numbers are being thrown around just yet. The firm expects to release the ‘test version’ of the Ascent spacecraft in 2027, however, so it’s not too long to wait. It’s also worth bearing in mind that a growth story can affect a company’s share price long before the money starts rolling in. Just look at the change in Rolls-Royce shares along with the developments in its SMRs (small nuclear power plants) for evidence of that.

And I think all BAE Systems shareholders will like the move towards the growing space industry. Later this year, the IPO of SpaceX will take place with a valuation of $2trn. I think that shows just how big this sector could become. It’s perhaps also encouraging that as well as the Military Space division, BAE Systems has a Civil Space division for non-defence applications.

To sum up? The announcement of these new Ascent spacecraft could end up as one of those small announcements that is a sign of a big impact over the long run. I think the stock is worth considering.

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It’s comfortably beaten Melrose Industries and is slightly lagging Rolls-Royce.

So is it fair for new investors to ask whether they’ve missed the boat, and for existing holders to wonder if it’s time to bank profits?

What has driven the surge?

Sadly, global conflicts drag on, despite attempts at peace deals. As a result, global military spending reached a record $2.7trn in 2024, up roughly 9% in real terms from the year before.

Naturally, there’s been particularly sharp increases in Europe and the Middle East. Conflicts in these two regions have kept defence and energy security at the top of political agendas. That, in turn, has ramped up demand for kit and services from contractors in the sector.

BAE’s own numbers have also impressed. In 2025:

• Revenue reached £28.3bn, up 8% year on year.
• Operating profit hit £2.9bn.
• Basic earnings per share (EPS) climbed to 68.8p. 

These were all ahead of the prior year.

Meanwhile, order intake reached around £36.8bn and the order backlog climbed to a record £83.6bn. This gives the group unusually strong visibility over future earnings.

Valuation: clearly expensive

After such a run, BAE does not look cheap. Just looking at a few quick valuation metrics, we can see the shares trade on the following:

• A price-to-earnings (P/E) ratio around 31.
• A price-to-book (P/B) multiple above 5.
• An enterprise value to EBIT of roughly 27.

Those are all well above typical long-run defence sector averages.

Before Russia’s invasion of Ukraine, BAE’s forward P/E was closer to 12 times earnings, so the market has more than doubled the rating it’s willing to pay for the stock.

Plus, with a yield of only 1.7%, dividends add minimal income potential. So the majority of returns from here will need to come from capital gains rather than income.

What are the risks?

There are several risks to keep in mind. Most critically, BAE’s dependance on government defence budgets. As global conflicts evolve, political shifts or budgetary reallocations could slow order growth.

The shares may have also seen uncharacteristically high growth due to rising tensions in Eastern Europe and the Middle East. Historically, such periods are often followed by a short-term correction as tensions ease.

Closer to home, BAE is dealing with industrial relations issues, including strikes in parts of its UK workforce. This could negatively impact the success of recent acquisitions like Ball Aerospace.

The bottom line

For new investors, the current valuation leaves little room for disappointment. Any setback on contracts, budgets or geopolitics could hit the shares hard in the short term.

Realistically, growth in the upcoming 12 months is unlikely to match the spectacular gains seen since 2025.

For existing shareholders or patient investors, it’s still worth considering the shares. The combination of a record order book, government spending and a growing dividend keep the long-term thesis intact.

But for those seeking outsized growth, I’ve spotted more appealing value plays on the FTSE 100 lately.

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Strong market conditions for defence firms means City analysts expect more impressive dividend growth. If forecasts are accurate, a £20,000 investment in BAE shares today will provide a £360 passive income in 2026.

Investors can generate a better near-term income with higher-yielding dividend stocks. But over the long term, I think BAE Systems could be a brilliant income share to own.

In great shape

Last year the FTSE firm paid a total dividend of 36.3p per share. Analysts are predicting this will rise to:

• 39.4p in 2026
• 44p in 2027
• 49.9p in 2028

However, dividends are never guaranteed, even for businesses in non-cyclical sectors like defence. So how realistic are these estimates? In my view they’re pretty robust, with expected payouts covered by predicted earnings bang on the safety benchmark of two times.

That provides a margin of error in case, say, costs spiral or supply chain issues hit project delivery, denting earnings. But that’s not the only reason I’m comfortable with current dividend forecasts — BAE’s balance sheet adds another layer of protection. Strong cash flows mean net debt (excluding lease liabilities) to underlying earnings has toppled to 0.9.

That’s not all. Cash flows in the defence sector are about as predictable as they get, underpinned by contracts that typically last years. A huge £84bn order backlog means a substantial portion of revenues and cash flows are already locked in, giving BAE the visibility it needs for reliable dividend growth.

A dividend growth hero

As I said, BAE Systems shares don’t carry the largest dividend yields. These range between 1.8% and 2.2% for the next three years. Yet the possibility of brilliant and sustained dividend growth makes it a passive income share worth serious consideration.

This is because hot dividend growth stocks like this can be more powerful than high-yielding shares. Rising payouts boost passive income, but they can also support healthy share price gains, and help investors stay ahead of inflation.

BAE Systems shares are hot right now as defence budgets climb. The question is, will they remain in high demand and experience further price growth? I’m confident they can, given how low most European countries’ arms stockpiles currently are. With geopolitical uncertainty increasing, this could underpin strong and lasting demand.

One drawback is that the defence sector is highly competitive. And more than in any other industry, product failure could have significant ramifications for future sales. However, I feel BAE’s excellent operational record, expertise across project areas, and iron-clad relationships with major spenders (US and UK) reduces such threats. On balance, I think it’s one of the best dividend stocks to consider for long-term income.

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However, by taking the right steps, investors can not only protect their portfolios but also position them to thrive over the longer term. Here’s how.

Why the stock market might crash

With a new blockade emerging in the Strait of Hormuz as a result of failed peace talks between the US and Iran, the supply chain disruption of key exports from the Middle East is being prolonged.

While most headlines are focused on oil & gas prices, there’s a long list of other crucial commodities impacted by the war. And that list includes fertilisers for food production, petrochemicals for plastics manufacturing, helium for semiconductor manufacturing, and aluminium for industrials.

Together, these supply shocks create a potentially perfect storm of shock-inflation that companies will either have to absorb or pass on to consumers. And neither scenario looks good.

Absorbing costs likely translates into heavily compressed gross margins. But passing costs along to an already weakened consumer could result in plummeting sales volumes.

The result? Shrinking revenue, profits, growth, and margins pave the way for a painful stock market correction, or potentially even a full-blown crash.

Don’t panic

While the global economic landscape is concerning, it’s critical not to panic and start making rash emotional decisions. A stock market crash is by no means guaranteed. And the situation in the Middle East is a very fluid situation.

Instead, investors need to stay disciplined and remain focused on the long term, prudently reviewing their risk tolerance in the process.

For those starting to lose sleep at night, now might be a good time to think about rebalancing and diversifying a portfolio into more defensive sectors.

But for those comfortable with short-term volatility, holding through the storm and looking to buy more when everyone else is panic selling, could go on to earn superb returns a few years from now when the storm eventually blows over, and the stock market recovers.

However, let’s focus on investors who might be feeling nervous right now. Which defensive stocks should they be considering in April 2026?

What the experts are recommending

Institutional analysts have put together a growing list of UK stocks that could be nicely positioned to weather the Middle Eastern storm. And that list includes BAE Systems (LSE:BA.).

Rising NATO defence budgets and the rearmament of Europe serve as powerful long-term tailwinds even when the conflict in the Middle East is resolved. And with a record £83.6bn order backlog that’s still growing, the benefits are already emerging.

It’s important to note that BAE isn’t completely immune. Its defensive solutions require a lot of raw materials like specialist metals such as titanium, aluminium, and rare earths. And with trade routes being disrupted by the war, these constraints have already started causing delays and lengthening manufacturing lead times.

It’s a risk that investors will need to consider carefully. But BAE Systems might be worth considering for investors seeking diversified exposure to the defence sector during these uncertain stock market conditions.

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I was curious to see which of the three ChatGPT liked the look of – and whether I agreed or disagreed with its choice. Here are the results.

Question: “Which stock should I buy: Aviva, Diageo or BAE Systems?”

Before taking a look at the answer, I should mention that using ChatGPT is more for fun than anything else. It’s not a financial advisor and shouldn’t be relied on as one. Also, I’ve had to make the somewhat time-consuming task of checking all the details in the following table so there aren’t any hallucinations as it can come up with some howlers.

With that out of the way, let’s take a look!

What’s its number one pick? BAE Systems – ChatGPT reckons it’s the best overall package.

The stocks

For my money, I can see why there’s so much attention on Diageo these days. It’s a great company with great brands and the share price is down 67%. If there’s a stock that’s going to have people say ‘of course that was a time to buy the dip‘ in a few years’ time then this very well could be it.

The other side of the coin is that we are very much in uncharted territory when it comes to changing consumer habits. Maybe people are going to turn off alcohol the same way they did for cigarettes. That’s the fear, anyway.

The reasons Aviva is a popular stock nowadays is almost the opposite. The share price has been on a terrific run – shareholders could have tripled a stake since 2020. It’s also paying some of the highest dividends on the FTSE 100. What’s not to love?

Valuation might be one drawback. The price-to-earnings ratio of 24 is high for the sector. Folks don’t tend to look towards insurers for stocks with high expectations of growth for the future.

Worth it?

As for the last choice, BAE Systems has been a popular stock on this website for years, and I’m not surprised. Defence manufacturing is one area where Britain is still world-class, and the huge shifts in government spending have given the firm a record order backlog that has just increased past the £80bn mark.

It’s been a strange period for geopolitics, in fairness. If a more peaceful few years are coming (as I’m sure we’re all hoping for) then this could impact the stock negatively. And it must be said, that’s an ethical reason some may wish to steer clear too.

As for my own choice, I actually own all three already. And in the case of BAE Systems, the stock has grown to a large enough part of my portfolio that I’m not thinking about buying more to become overexposed. To a new investor though? I think it’s worth considering.

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