LONDON -- Shares in BAE Systems  have rocketed over the past five weeks, up more than 20% since mid-February and just below last week's four-year peak above 390 pence.

Although the effect of squeezed budgets in the West has resulted in falling turnover for BAE Systems, I reckon that the company's role as a diversified product builder across the defence spectrum, coupled with its strategy to increase activity in new geographies, should uphold long term growth.

A prestigious brand in new markets
BAE Systems reported last month that group sales dropped 7% to £17.8 billion in 2012, in turn pushing pre-tax profit also 7% lower to £1.7 billion.


The company has faced mounting pressure from falling defence spend in the U.S., by far its largest single customer, and further sales pressure can be expected as crimped budgets weigh and operations in Afghanistan wind down in coming years.

However, BAE Systems remains a key supplier to the U.S., and just yesterday inked a jumbo five-year, £512 million contract with the U.S. military to provide explosives.

As well, the defence specialists are stepping up action in developing geographies, and saw order intake outside of the U.S. and U.K. rise to £11.2 billion last year from £4.8 billion in 2011. And a group-wide order backlog of £42.4 billion, up 8% from the previous year, provides decent earnings visibility.

Attractive dividend income on offer
Income investors love BAE Systems on account of its progressive dividend policy, which has continued to dig out shareholder payout hikes even in times of earnings pressure. City forecasters predict last year's 19.5 pence dividend to rise to 20.4 pence this year before marching on to 20.8 pence in 2014.

Payments this year and next are expected to provide yields of 5.2% and 5.3% correspondingly, some way ahead of the 3.5% FTSE 100 average. And with solid coverage above the widely-held security threshold of 2 times -- cover of 2.1 times is predicted for both of the next two years -- investors can be confident of future payout prospects.

In addition, BAE Systems also announced at March's results a three-year shareholder buyback programme which is expected to return as much as £1 billion to shareholders.

Target value for money
Earnings per share are set to rise 10% in 2013 to 43 pence, according to broker estimates, but are expected to remain flat next year.

Despite the recent share price acceleration, BAE Systems remains cheap in comparison to its aerospace and defence peers -- the company's P/E rating of 9.1 and 9.2 for this year and next stack up favourably to an average forward multiple of 11.7 for the wider sector.

I believe that this provides good value for money given the company's generous dividend policy and long-term growth prospects in new markets.

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The article Should You Buy BAE Systems Today? originally appeared on Fool.com.

Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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