Buy-and-hold investing remains one of the most effective ways to generate long-term wealth. It’s a simple strategy that can work wonders over the long run, especially when it’s boosted by the power of dividend reinvestment.
With that in mind, today I’m looking at three FTSE 100 dividend stocks that I believe have excellent buy-and-hold potential.
Let’s start with packaging company DS Smith (LSE: SMDS), which in my view, is one of the most underrated stocks in the FTSE 100. Packaging may not be the most exciting investment theme in the world, yet with the global boom in online shopping (which requires vast amounts of packaging), I think DS Smith is well placed to generate robust returns for investors going forward.
DS Smith has made some key acquisitions in recent years, both in Europe and the US, which have transformed the company into a big player in the global packaging market. And conditions look favourable at present, with CEO Miles Roberts recently stating that the corrugated packaging industry continues to demonstrate “excellent growth prospects” and that DS Smith is in a “strong position” to capitalise on opportunities.
With the shares trading on a forward P/E of 12.7 and offering a prospective yield of 3.4%, I see value on the table right now.
Next up, check out ITV (LSE: ITV). After climbing to 180p back in July, the shares are back under 160p and at that price, ITV’s prospective dividend yield of 5.1% looks mighty tempting.
What I like about it is the growth of the ‘Studios’ division, which is the content side of the business. While advertising revenues from broadcasting have been weak in recent years, ITV Studios has been motoring ahead, generating revenue growth of 13% last year and 16% in the first half of this year. It is clearly onto a winner here, and this means that the business is now far more diversified than it was in the past and no longer reliant on advertising for revenue.
ITV has undergone a ‘strategic refresh’ recently and is investing for the future at the moment. However, it recently advised that it is committed to a full-year dividend of “at least 8p” per share in 2018 and 2019 which is good news for dividend investors. CEO Carolyn McCall also recently stated that the company will be “very disciplined” with any deals. On a forward P/E of 10.1, I think there’s long-term value here.
Lastly, another top dividend stock that could be worth a look right now is insurance and investment management specialist Prudential (LSE: PRU).
When investing for the long term, it can pay to seek out companies that have tailwinds driving growth. Prudential certainly has that as it has significant exposure to Asia (15m life insurance customers across 12 countries) meaning that it is well placed to benefit from the rise in wealth across Asian economies in the coming decades. There are still billions of people across this region with no insurance or savings products, meaning there is plenty of room for growth.
Prudential is certainly not the highest yielding stock, with a prospective yield of just 2.8%. But when you consider that the dividend is well covered and that the company has registered 13 consecutive dividend increases now, it becomes apparent that this is a high-quality ‘core holding’ type company. Trading on a forward P/E of 12, I see long-term buy-and-hold potential.