2 hot FTSE 100 dividend stocks I’d buy in February

These two shares offer excellent income potential.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buying dividend stocks has generally been a sound strategy in recent years. Low levels of inflation plus low interest rates have resulted in higher-yielding shares becoming more popular. Even though inflation is expected to rise, companies that offer growing dividends and a relatively high yield should still prove popular in 2017. Here are two stocks which offer just that combination, as well as wide margins of safety through low valuations.

A growing life insurer

Aviva‘s (LSE: AV) decision to merge with Friends Life has thus far proven to be highly successful. The expected synergies are on target to be delivered and the combined entity should provide greater resilience in future years. It should be a more dominant player within the life insurance space and, since Brexit is unlikely to have a major impact on the business, its risk profile remains relatively low.

The company’s yield of 5.4% is around 180 basis points higher than the FTSE 100’s yield. Furthermore, it is likely to rise at a faster pace than that of the wider index, since Aviva is likely to raise dividends by at least as much as earnings growth over the medium term. Since it is forecast to post a rise in earnings of 14% this year, followed by 6% next year, this should easily beat inflation. The company could even be yielding over 6% within a couple of years.

Aviva trades on a price-to-earnings (P/E) ratio of 9.6. While there is scope for the FTSE 100’s value to come under pressure since it is near to a record high, the company’s valuation indicates it offers an attractive risk/reward ratio.

A recovering healthcare play

AstraZeneca (LSE: AZN) may seem like an unlikely choice as an income stock. Certainty, at 5.2% it yields well in excess of the FTSE 100. However, it has not raised dividends in recent years, as its loss of patents has led to significant declines in earnings.

This situation is forecast to change. Although the company’s bottom line is expected to fall by 9% this year, growth is anticipated from 2018. In the 2018 financial year, AstraZeneca’s net profit is due to rise by 11% and this could be the start of a period of better performance for the business. It has a strong pipeline of potential treatments thanks to major investment in recent years. And with a growing bottom line could come a rising dividend. In fact, in 2018 its shareholder payouts are expected to rise by 2.2%.

Since AstraZeneca trades on a P/E ratio of 12.6, it appears to offer excellent value for money. Upward re-rating potential is high, especially since historically it has had a P/E ratio which is in the mid to late teens. Therefore, its shares could offer defensive appeal in 2017 during what could be a challenging period for the wider market. When combined with its bright income potential, this makes the stock a standout dividend play.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of AstraZeneca and Aviva. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »