1 FTSE 100 dividend stock I’d buy and hold forever

This dividend stock could deliver impressive long-term performance.

| 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.

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.

The popularity of dividend stocks could increase in future. One reason for this is the rising rate of inflation. It now stands at 3% and means that it is becoming more difficult to obtain a real-terms income return. Since Brexit is edging closer and uncertainty appears to be building regarding a deal between the UK and EU, it would be unsurprising if inflation moved higher.

With that in mind, here is one FTSE 100 dividend stock which could be worth holding for the long term. Although it faces an uncertain future, its income return could be relatively high.

Improving outlook

The company in question is J Sainsbury (LSE: SBRY). It has experienced a challenging period which has included significant pressure on UK consumers, as well as heightened competition from discount retailers. This has caused a decline in the company’s profitability, with its earnings having fallen in each of the last three years. They are also expected to drop in the current year by 8%.

However, the company’s outlook appears to be positive. The acquisition of Argos could help the business to grow, as well as create cross-selling opportunities. The synergies from the deal could be significant and may help the group to offset any decline in sales growth over the medium term. In fact, the company’s earnings are due to grow by 12% in the next financial year. This puts the stock on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it offers excellent value for money.

Dividend prospects

With earnings expected to rise next year, Sainsbury’s may be able to afford a higher dividend. Shareholder payments are expected to rise by almost 10% in the next financial year. This puts the stock on a forward dividend yield of 4.6%. And with dividends set to be covered around twice by profit, there could be additional growth in shareholder payouts over the medium term.

Of course, there are other stocks which also have impressive income outlooks. For example, reporting on Friday was flooring specialist James Halstead (LSE: JHD). It stated that current trading is in line with its budgets, even though competitive headwinds have remained high. This represents a good performance at a time when margins have the potential to come under pressure. And with the company’s update stating that it is proposing a record dividend per share of 9.25p, it appears to offer significant income potential.

With James Halstead expecting to launch a number of new ranges and designs in 2018, it continues to be upbeat about its future outlook. With a dividend yield of 3% and dividends being covered 1.3 times by profit, its scope to deliver further growth in shareholder payouts seems high. Its earnings are due to rise by 4% in the current year and this could enable it to offer dividend growth which is above the rate of inflation. As such, now could be a good time to buy it alongside Sainsbury’s for the long run.

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 in Sainsbury's. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s what these results tell me about the Lloyds share price

A policy of progressive shareholder returns, including big dividend yields, makes the Lloyds share price look super cheap to me.

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

Passive income from 9.2% yield stock could cut pressure as costs spike

Passive income is one way to reduce the pressure on families, especially as a new study finds a third of…

Read more »

Rainbow foil balloon of the number two on pink background
Investing Articles

2 FTSE 100 dividend shares I’d buy to build £15k passive income

Building long-term passive income is an important part of my investment strategy. Here’s a couple of Footsie shares that I…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Could this 2p UK penny stock be my biggest investing goldmine?

Picking up an unknown penny stock on the cheap -- if it has booming profits -- can give a huge…

Read more »