Investing in UK Defence Stocks
As long as countries need armed forces, intelligence agencies and law enforcement, governments will continue to fund them. This means that many top defence companies can often rely on a fairly consistent stream of revenue from government contracts.
The London Stock Exchange is home to a number of defence companies which provide a range of products and services - including weaponry, intelligence, risk assessment and cybersecurity. But what are the best UK defence stocks to watch in 2024?
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Investing in Defence Stocks
As noted in the introduction, many of the top defence stocks generate fairly reliable revenue from government contracts, although income may increase during periods of geopolitical instability.
After the Cold War ended, defence spending around the world fell as international tensions eased. However, owing to heightened geopolitical tension, this trend has reversed, with global defence spending hitting a record $2.2 trillion in 2023.
The Russian invasion of Ukraine in 2022 has sparked a revaluation of defence capabilities around the world. As Western nations continue to arm Ukraine whilst simultaneously looking to increase their own defence spending, defence contractors have seen orders rise.
Consequently, a sector which had been previously somewhat maligned by investors has received a wave of interest, with share prices of many defence stocks soaring last year.
UK Defence Stocks to Watch
So, of the defence contractors listed on the LSE, what are the best UK defence stocks to watch?
BAE Systems
BAE Systems is an arms, security and aerospace company. It is the largest UK defence contractor and one of the largest defence stocks in the world.
Despite being headquartered in the UK, BAE Systems has a global customer base. Its two largest customers are the US Department of Defense and the UK Ministry of Defence which, between them, accounted for more than half of revenue in 2023.
As international tensions have risen, BAE Systems’ order backlog hit a record £69.8 billion in 2023 and, as with several other UK defence stocks, its share price has posted strong gains.
In 2022, BAE Systems was the best performer in the FTSE 100, rising 56% in what was a difficult year for many equities. The UK defence stock followed this up in 2023 by notching a further gain of 30%.
BAE Systems also has an impressive track record of dividend payments, having increased its annual dividend every year for the last two decades. Even after the share price gains of the last two years, the defence stock has a dividend yield of 2.4%.
Rolls-Royce Holdings
Although the name is perhaps more closely associated with the brand of luxury cars, Rolls-Royce Holdings is a multinational aerospace and defence company based in the UK.
At one point the company was also responsible for the automobiles of the same name; however, after entering liquidation, Rolls-Royce was nationalised by the UK government in 1971 who spun off the automobile division, allowing the parent company to concentrate on jet engine manufacturing. In 1987, Rolls-Royce returned to the stock market.
Still specialising in jet engines, Rolls-Royce has a Civil Aerospace division and a Defence division – which produces aero engines for military transport and patrol aircraft. Its Defence division accounted for 26% of underlying revenue in 2023 and reported a record order backlog of £9.2 billion.
Whilst the previous of the UK defence stocks we examined was the FTSE 100’s top performer in 2022, Rolls-Royce was by far the index’s best performer in 2023. Over the course of the year, share price soared more than 220%.
Although Rolls-Royce used to pay dividends, it axed its distributions in 2020 in the wake of the pandemic and has yet to announce when they will return.
How to Invest in Defence Stocks
With an Invest.MT5 account from Admiral Markets you can buy shares in both the UK defence stocks highlighted in this article. In order to learn how to invest in defence stocks, follow these steps.
- Open an Invest.MT5 account.
- Log in to the Dashboard.
- Open the web trading platform.
- Search for the UK defence stock and click the symbol to open a price chart.
- Create a new order, enter the number of shares and click ‘Buy’.
Investing with Admiral Markets
With an investing account from Admiral Markets, you can buy shared in over 4,500 companies and more than 200 Exchange-Traded Funds (ETFs) from around the world. Click the banner below to find out more about our Invest.MT5 account:
FAQ
What is the largest defense company in the UK?
BAE Systems is the largest defence contractor in the UK in terms of market capitalisation.
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