Two FTSE 100 dividend champions for a starter portfolio

Falling valuations and 3.3%+ dividend yields make these FTSE 100 (INDEXFTSE: UKX) stars top starter portfolio stocks in my eyes.

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The FTSE 100 may not be the best place to look for deep-value bargains or a super-charged growth stock like Fevertree Drinks. But for investors just starting out, the UK’s largest index can be a great place to dip your toes in the water with dependable companies that offer bumper dividends and are unlikely to cause severe headaches.

A golden opportunity 

At the top of my list is Unilever (LSE: ULVR), the consumer goods giant that is as diversified and non-cyclical as they come. And with its shares down around 8.5% year-to-date, it’s looking cheaper than it has in ages with a valuation of just 17.8 times forward earnings and an attractive dividend yield of 3.3%.

With €53bn in annual sales, Unilever isn’t going to be posting double-digit revenue growth any time soon, but for a company of its size, it’s still growing very nicely. Underlying sales growth last year was 3.5%, well within management’s 3%-5% target range, with underlying operating profit growth in the double-digits as an ambitious cost-cutting programme improved margins by 110 basis points to 17.5%.

I see little reason for this growth to slow down as management has done an admirable job of repositioning the group’s brand portfolio away from slow growth food items that have fallen out of favour with consumers, such as its margarines business, and towards higher growth personal care brands like the millennial favourite, Dollar Shave Club.

In addition to constant brand management, which includes the frequent acquisition of up-and-coming companies that benefit from Unilever’s scale and distribution networks, the company is also well-positioned to take advantage of growth in non-developed countries. Emerging markets now account for 58% of group turnover and as the likes of China and India grow wealthier and demand branded consumer goods, Unilever is well-placed to benefit over the long term.

Tailwinds at its back

Another great starter option is DS Smith (LSE: SMDS). The packaging provider operates across Europe and North America and offers its customers everything from cardboard packaging meant for grocery displays to specialised boxes for e-commerce and industrial cardboard to protect items such as engines during shipment.

The company’s shares trade at only 14.8 times forward earnings and kick-off a well-covered 3.24% dividend yield, so there’s plenty to like for value investors. But there’s even more that growth investors will enjoy as the company is now expanding into the massive US market and also benefits from the e-commerce wave that is causing increased demand for its services.

The group’s Q3 trading statement released this morning contained no firm figures, but management reported that volume growth remained strong and the group was taking market share from competitors. This suggests that the 5.2% organic growth posted in H1 continued and may have accelerated.

Management also stated it was having success passing on rising paper prices to customers, so there’s scope for the group’s operating margins to begin bouncing back after falling to 8.9% in H1. Net debt was also back down to around 2 times EBITDA following the American acquisition in June, so acquisitions have started again with the £244m purchase of a Romanian competitor.

With acquisitions and organic expansion driving double-digit revenue growth, I think DS Smith could be a great stock for investors who aren’t afraid to own it for the long term and overlook the cyclical nature of its business.

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.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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