In most people’s minds, BAE Systems‘ (LSE: BA.) shares aren’t close to offering the best dividends at the moment, with the defence firm’s yield standing at just 1.76%.

It’s a payout that’s increasing, but the forward yield’s still only 1.91%. As there are other FTSE 100 stocks paying four times as much, is it time to look elsewhere?

Perhaps not. By running a quick calculation (as I’ll show below), we can see that BAE Systems has been a great stock to buy for both share price returns and dividends. Buying when cheap has even offered investors the chance to earn a 16% yield on the original stake. Here’s how.

How much?

The aftershocks of the 2008 recession sent many shares into a tailspin. Some of these discounts weren’t in line with company performance. And that’s why bargains were on offer. BAE Systems’ share price hit a low of 252p back in 2011.

The years following saw an impressive turnaround. The knock-on effects of increased defence spending in light of the Ukraine war boosted the shares too. The share price has now risen all the way to 2,088p. Who says the FTSE 100 is lacking in growth shares?

Dividends grew too. The current dividends might seem low buying today, but have multiplied over and over for investors who got in cheap and early. The forecast dividend of 39p would mean a 16% yield against a share price of 252p.

A £5,000 stake invested then would now pay a dividend yield of £774 – a payment set to go higher in the years ahead too.

Bear in mind

Those numbers look strong, but there are a few things to bear in mind. For one, I picked a low entry point and a good stock over the period. The above results aren’t typical and, of course, dividends are never guaranteed from any company.

A 15-year holding period is a hefty chunk of time too. Those wanting dividend stocks as an immediate source of passive income may turn their noses up at waiting so long.

There are also no guarantees the next 15 years will be similar. With a price-to-earnings ratio (P/E) of 30, BAE Systems is priced with the expectation of growth. Not to mention, some investors won’t feel comfortable investing in a firm that makes weapons of war.

I still think the stock’s worth considering. Government military spending looks set to increase further, and BAE Systems is one of the first places big spenders can go to get the best kit. The company’s latest ‘Ryan’ drones being used in Ukraine is evidence it can adapt to the needs of modern warfare too.

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John Fieldsend owns shares in BAE Systems.