The BAE (LSE: BA) share price has gone like a missile over the past five years. While the dividend doesn’t look like much at first glance, that’s been rising steadily too, giving long-term investors a solid stream of income to go with all that capital growth.

This combination has made BAE Systems one of the standout stocks on the FTSE 100. So what’s been fuelling it?

Booming global demand

Defence and aviation stocks were out of fashion a few years ago, but now the world is rearming at pace. That’s sad for the world but has been a clear positive for BAE.

On 30 July, BAE delivered a bumper set of interim results, upgrading full-year guidance as sales jumped 11% to £14.6bn and underlying operating profit climbed 13% to £1.6bn. That’s real progress in any macroeconomic environment.

Management now expects underlying profit growth of 9% to 11% for the full year, reflecting rising demand across all divisions.

BAE is in the right place at the right time. Garry White at Charles Stanley described it as operating in an “industrial sweet spot” as NATO countries agree to lift defence spending.

Strong order book

The group’s order backlog sits at a towering £75.4bn, just shy of all-time highs. That gives it great visibility over future revenues.

Aarin Chiekrie at Hargreaves Lansdown called the company’s latest results “blockbuster” and noted that 45% of its first-half revenues came from the US. That should help it tap into spending on major projects like the Golden Dome missile defence system, keeping the order pipeline flowing.

Over the last 12 months, BAE shares are up 45%. Over five years, they’ve climbed a staggering 250%. A £10,000 investment in August 2020 would be worth around £35,000 today, based on share price growth alone.

Dividends adding to the total

Now for the dividends. The stock currently yields 1.8%, which looks low, but that’s down to its soaring share price. Over the past five years, BAE has increased its dividend by an average of just over 8% a year.

In 2024, it hiked the payout by an even more generous 10% to 33p. Total dividends paid over the last five years amount to 138.8p per share.

Back in 2020, £10,000 would have bought 1,972 shares at around 507p each. Those shares would have generated £2,737 in income over five years, lifting the total return to £37,737. Reinvesting that income would have pushed the figure even higher, thanks to the compounding effect of buying more shares.

Income may not be doing the heavy lifting here, but it’s certainly the icing on the cake.

Looking ahead

With a price-to-earnings ratio of 26, some of BAE’s future potential may already be priced in. If new orders dry up, or technical issues arise, the share price could come under pressure. There’s even a slim chance of the much-desired global peace breaking out. I won’t hold my breath.

Despite the strong run, analysts still expect growth. The median one-year share price forecast among 16 analysts sits at 2,112p, which implies further potential gains of around 14.5% from current levels, plus dividends. If correct.

There are no guarantees, but with such a strong order book, global demand, and a rising dividend, I think investors might still consider buying BAE shares today with a long-term view.