BAE Programs (LSE: BA) shares are famend for his or her progress potential, and so they’ve actually delivered on that recently.

Shares within the FTSE 100 defence big are up a whopping 275% during the last 5 years, and 40% over 12 months. Having purchased the inventory final yr, I’m thrilled. I acquired what I used to be in search of.

I purchased BAE Programs for 3 causes. First, regular income progress. Up to now, so good. On 7 Might, it confirmed a robust begin to 2025, with steerage reaffirmed. Administration expects revenues to develop by 7% to 9% this yr, with underlying earnings per share rising by 8% to 10%.

Rising revenues

Second, its bulging order e-book. BAE has been choosing up contract after contract, and now has an eye-watering £77.8bn of enterprise within the pipeline. That’s up £8bn in a yr, providing actual monetary visibility.

Third, the cruel geopolitical actuality. With threats from Russia, China, Iran and North Korea mounting, governments are beneath stress to spice up defence spending. That’s a grim outlook, however for buyers in defence contractors like BAE Programs, it gives long-term assist.

I didn’t purchase BAE for dividend revenue. The yield is normally low – at this time it’s simply 1.69% on a trailing foundation. That’s tiny in comparison with the passive revenue I’m getting from FTSE 100 shares similar to M&G, Phoenix Group Holdings and Taylor Wimpey. They’re paying 8% or 9%.

However excessive yields don’t all the time inform the total story. Yields are calculated by dividing the annual dividend per share by the share price. Which means if the share price rockets – as BAE’s has – the yield falls.

That may cover a strong historical past of dividend progress. Which in BAE’s case, is actually spectacular. The group has lifted its shareholder payout for 21 years in a row. That’s an excellent observe report, placing it amongst a small handful of elite FTSE corporations. I believe I can safely name it a dividend celebrity.

Earnings progress

Over the previous decade, BAE has elevated its dividend at an annual compound fee of 4.88%. That’s first rate sufficient. However over the previous 5 years, its stepped up the tempo to a mean of seven.31% a yr. With free money movement to exceed £1.1bn this yr, it appears to be like properly supported.

So whereas the revenue may look underwhelming at first look, the dividend has the potential to compound and develop over time.

In fact, nothing is assured. Dividends will be minimize. And with BAE Programs buying and selling at a price-to-earnings ratio of 28.6, the inventory doesn’t look low cost. That partly displays the rising perception that western nations will likely be pressured to rearm. However budgets are tight, and politicians’ guarantees don’t all the time come by way of.

A negotiated settlement in Ukraine may additionally dent investor confidence. Sadly, that also appears like a distant prospect.

BAE is already one of many FTSE’s most profitable long-term progress shares. That was my most important motive for investing. However I’ve come to understand its dividend credentials too.

Because the world will get extra warlike, BAE Programs is price contemplating shopping for at this time. Not only for progress, however its long-term revenue potential too.