A Top, Cheap FTSE 100 Dividend Share You Should Buy After The Stock Market Crash
The 2020 stock market crash has left scores of UK shares looking monstrously oversold. Here I look at one of the best low-cost stocks to buy right now: BAE Systems.
A Double-Digit Share Price Fall
FTSE 100 stock BAE Systems continues to struggle as investors worry about the consequences of Covid-19 on global governments’s defence spending in the next few years. As a result this arms builder’s share price has slumped 15% during the past six months.
Recent comments from the International Institute for Strategic Studies outline the potential challenges facing the defence sector. The think tank said that “[while] it is too early to discern what the full impact of this pandemic will be for defence ministries… it will have an impact, and a significant one.” It added that “increased pressure on funding is inevitable.”
The recent price weakness that such speculation has caused leaves BAE Systems for one dealing on a forward price-to-earnings (P/E) ratio of 12 times. And it carries a large dividend yield of 4.5% for 2020 too. I reckon this makes it one of the most attractive UK shares to buy today.
A New Arms Race
As the world becomes more dangerous it’s my opinion that defence spending is one of the last things that major Western nations will want to cut back on. With traditional rivals like Russia, and emerging major players like China adopting more hawkish foreign policies their spending is rising. Just this week China released details of its Tianlei 500 system, a 500kg precision-guided munitions dispenser and air-to-surface missile.
Significant BAE Systems customers like the US and UK will be encouraged to keep spending in response to rising weapons budgets elsewhere. If anything the geopolitical consequences of Covid-19 — as perfectly illustrated by the terse verbal sparring between Washington and Beijing over what President Trump has named “the Chinese virus” — has increased the appetite amongst major global players to ramp up growth of their militaries.
A Bright Outlook
No wonder BAE Systems commented last month that “demand for our capabilities remains high.” It continues to win business across all divisions and orders at its US electronics business sit at record highs. As well as expecting robust demand from its traditional Western customers going forwards, this UK share can also expect ongoing military building from the likes of India and Saudi Arabia to keep the top line moving higher. Rising terrorism across the world will also boost turnover.
The economic consequences of Covid-19 in the short-to-long term and beyond remain unknown. Global infection rates have spiked again and the search for a coronavirus vaccine remains ongoing. However, I consider the slight chance that this will impact demand for BAE Systems’s broad range of cutting-edge technologies to be baked into the UK share’s price today. I’d happily buy it at the current price of 540p per share.