Lloyds and BAE Systems make the case for FTSE 100 buy-and-hold stocks

Two names dominate the list of FTSE 100 buy-and-hold stocks that serious long-term investors keep returning to: Lloyds Banking Group (LSE: LLOY) and BAE Systems (LSE: BA.). Both sit in a Self-Invested Personal Pension with no planned exit. Here is why each one earns that conviction, and where the risks actually sit.

Lloyds: the income engine with a balance-sheet story behind it

Lloyds almost sank the UK economy during the financial crisis and survived only after a taxpayer bailout of £20.3bn. The government eventually recovered £21.2bn when it sold its stake, but shareholders endured years of depressed returns. That history is worth holding in mind, because it frames just how much the bank has been rebuilt since.

The 2025 full-year numbers tell a different story today. Pre-tax profits came in at £6.7bn, up from £5.97bn in 2024. (Yahoo Finance reported the figure as £6.66bn; the Investegate RNS and the group’s own announcement round to £6.7bn, which is the figure used here.) Total income reached £19.4bn, an 8% increase year-on-year, with underlying net interest income rising 6% to £13.6bn and a banking net interest margin of 3.06%.

Loan growth adds texture to that margin story. Lloyds Banking Group grew underlying loans and advances to customers by £22.0bn, or 5%, to £481.1bn over 2025, with retail accounting for £18.8bn of that expansion and commercial banking a further £2.7bn. The group also generated capital of 147 basis points during the year, which is the engine room for the distributions that income investors are actually buying.

Those distributions are substantive. Total shareholder returns for 2025 reached £3.9bn, comprising a share buyback of up to £1.75bn and a total ordinary dividend of 3.65 pence per share, up 15% on the prior year, with a recommended final dividend of 2.43 pence per share. The stock is forecast to yield 3.74% this year, rising to 4.4% in 2027, on a forward price-to-earnings ratio of 11.5.

Looking ahead, the group’s own 2026 guidance points to underlying net interest income of approximately £14.9bn, a cost-to-income ratio below 50%, an asset quality ratio of around 25 basis points, and a return on tangible equity greater than 16%. Half-year results and a strategy update are scheduled for 30 July 2026, which will be the next meaningful test of whether that guidance holds.

The structural risk is well understood: challenger banks continue to erode the edges of the franchise, the UK economy remains sluggish, and a purely domestic retail bank has limited levers when growth stalls. The share price is up 145% over five years, a run that may moderate. But for a long-term holder, the income cadence and the group’s progressive dividend policy are the core thesis, not the capital appreciation.

BAE Systems: backlog depth as a margin of safety

The case for BAE Systems as one of the stronger FTSE 100 buy-and-hold stocks rests less on optimism about geopolitics and more on the arithmetic of its order book. The group’s order backlog grew by £5.8bn to a record £83.6bn in 2025, a figure that gives management years of revenue visibility regardless of near-term budget cycles in any single customer country.

Full-year 2025 sales came to £30,662m, with underlying earnings rising 12% to £3.32bn, ahead of both market consensus and the group’s own guided growth range of 9% to 11%. Earnings per share were 75.2p. Orders of £36.8bn were recorded for the year, up 9%, and included £4.6bn from Turkey for 20 Typhoon fighter jets, $3.3bn in electronic systems contracts, and $1.7bn for US combat vehicles.

Free cash flow slipped 14% to £2.16bn, and that deserves watching: it is the metric that funds both the dividend and debt reduction. Net debt fell 22% to £3.84bn, so the balance-sheet trajectory is moving in the right direction. BAE Systems has increased its dividend for more than 20 consecutive years, with the yield currently projected at 1.8%, which is modest but consistent.

The forward P/E of around 25 is the point at which many investors start to hesitate, and that caution is not unreasonable. Peace settlements in active theatres would reduce near-term order flow, and Western government finances remain stretched. Investing in defence has never been without controversy or cycle risk. But the record backlog provides a buffer that most industrial companies at similar valuations simply do not carry. The share price is up 268% over five years.

The next number to watch is free cash flow conversion: if the 2026 figure rebounds toward the group’s historical run-rate, the valuation argument against holding becomes considerably harder to sustain.