3 FTSE 100 dividend stocks I think you’d be crazy to ignore

These FTSE 100 (INDEXFTSE: UKX) dividend stocks have plenty of potential, argues Rupert Hargreaves.

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I think you’d be crazy to ignore the dividend opportunity on offer at former Costa Coffee owner Whitbread (LSE: WTB)

Selling up, moving on 

Last year, the company announced it would be selling Costa Coffee to American drinks giant Coca-Cola for a grand total of £3.9bn. Management is planning to return the bulk of this cash to investors and reinvest the rest back into the business. So far, management has declared £2.5bn will be spent buying back shares. 

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Cash left over is earmarked for the development of the company’s Premier Inn brand. Long term, the firm reckons this could add an additional 170,000 rooms in the UK and around the rest of the world, more than doubling the number the group currently operates. 

Management is also hoping to reduce operating costs across the group by around £220m per annum over the next three years.

These growth ambitions suggest Whitbread’s earnings are going to grow substantially over the next five-to-10 years, which should translate into dividend growth. Historically, the company has paid out around 50% of earnings per share in dividends. That suggests that while the stock’s dividend yield of just 1.9% might not look particularly attractive today, I reckon there’s a good chance it could double or triple during the next decade.

Slow and steady

Informa (LSE: INF) has similar attractive dividend qualities. This publishing and data analysis business flies under the radar of most investors because it isn’t a particularly exciting enterprise. However, it has grown steadily over the past decade, and shareholders have seen the value of their investments grow four-fold since 2009.

The stock currently supports a dividend yield of 3%, below the market average, but the payout is covered 2.2 times by earnings per share. That tells me there’s plenty of headroom for further dividend growth.

What’s more, the company’s earnings per share have more than doubled over the past six years. If it can maintain this rate of growth, I see no reason why the annual dividend could not double by 2024, rising from 23p per share to 46p — giving investors buying today a dividend yield of 6.1%. 

Shares in the business are currently dealing at a forward P/E of 14.7 which, once again, doesn’t seem too expensive compared to the company’s historical growth.

Hard times 

The final FTSE 100 dividend stock I think you’d be crazy not to buy is Reckitt Benckiser (LSE: RB). Reckitt is one of the world’s largest consumer goods companies, which means it’s one of the most defensive businesses investors can buy today. 

Even though the stock has lost around a third of its value over the past two years, fundamentally it’s strong, and analysts have pencilled in earnings growth of 1.1% for 2019, and 6% for 2020.

This rate of growth isn’t as fast as it has been, but considering the headwinds the company is facing, particularly disruption at its baby formula business, it’s impressive. Over the past six years, earnings per share have increased by around 50%.

The shares currently yield 2.8% and the distribution is presently covered twice by earnings per share. This leads me to conclude the payout is sustainable and has plenty of room to expand over the next few years.

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Rupert Hargreaves owns no share 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.

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 considered, so you should consider taking independent financial advice.

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