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2 Footsie dividend stocks I’d buy with £1,000 today

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Where would I go if planning to invest £1,000 into each of two dividend stocks?

I’m convinced that the housebuilding sector has become one of our best for long-term dividends, and the latest housing update from UK Finance supports that.

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In 2017, the number of first-time buyers taking out mortgages rose to 365,000, the highest total since the financial crisis. The organisation reckons that growth is set to slow in 2018, but for me it still reinforces the fact that the UK’s housing shortage will be with us for a long time yet.

And when I look at the likes of Persimmon (LSE: PSN), whose 2,450p shares are on forward P/E multiples of under 10 while the company is offering prospective dividend yields of 5.6% and better, I scratch my head.

Further to go?

The share price has soared more than tenfold since a low point back in November 2008, and that’s surely enough for many to take profits and think that the bull run can’t go any higher. But that’s recovering from the crash triggered by the banking crunch. If we look back to Persimmon’s previous share price peak in December 2006, we’ve seen a relatively modest 60% rise since then — a little over twice the FTSE 100‘s performance.

Earnings growth looks set to slow, with forecasts suggesting only 5% this year and 3% next. But that only looks disappointing when compared to the rapid recovery following the financial crisis which saw several years of double-digit growth, and that was always going to slow.

Persimmon’s 2017 results are due on 27 February and it looks like they’re going to report a 9% rise in revenue to £3.42bn, with a 6% increase in completions to 16,043 homes at an average selling price. That’s up 3% to approximately £213,300.

I still see Persimmon as a cash cow.

Progressive cash

For those seeking long-term income, I’d always recommend mixing shares offering stable high dividend yields with some on lower yields, but with strongly rising payments.

Avon Rubber (LSE: AVON) is one of the latter, and while we’re looking at current yields of only around 1.3%, it’s one of the more progressive dividends around. From a payment of 4.32p per share in 2013, the dividend rose as high as 12.32p in 2017 — and forecasts would take that to 19.8p by 2019.

Earnings have been rising strongly and if forecasts come good, we’d have seen a 4.6-fold rise in dividend cash in just six years. Those who bought in early 2013 at around 445p would be looking at an effective yield this year of 3.5%, rising to 4.4% next year. Oh, and they’d have enjoyed a trebling of the share price too.

New MOD contract

Avon’s status as a reliable investment was boosted Thursday by the announcement of a new agreement with the UK Ministry of Defence for the resupply and service of respirators. 

The deal should generate revenues of £16m over a five-year period, with production starting in the first half of 2019, pending product approvals. However capital expenditure of around £3m, spread across the next two years, will be needed.

Avon describes itself as “the recognised global leader in advanced chemical, biological, radiological and nuclear respiratory protection systems for the world’s military, law enforcement and fire markets.” And that looks to me like a market that should provide strong demand (and therefore tasty dividends) for decades ahead.

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Alan Oscroft has no position in any of the shares mentioned. 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.

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