Dividends are back! Here are 3 FTSE 100 income stocks I’d buy for retirement

With companies kickstarting their dividend policies, Paul Summers picks out three solid income generators from the FTSE 100 (INDEXFTSE:UKX).

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After having been slashed across the board back in March, dividends are now back. The news will gladden the hearts of UK income chasers.

Today I’m looking at a trio of FTSE 100 stocks that have informed the market of their intention to return cash to their owners. Thanks to their size and all-round resilience, I think all are worthy of consideration by those with one or both eyes on retirement.

Back on track

FTSE 100 paper and packaging group Mondi (LSE: MNDI) is first up.

Having withdrawn its final dividend of 55.72 euro cents per share back in April, the £7bn cap said earlier this month that it would now pay holders 29.75 euro cents for 2019.

It gets better. In addition to this payment, the company also announced a 2020 interim dividend of 19 euro cents per share. This is despite pre-tax profit in the six months to the end of June slumping 26% to €466m.

On a little less than 14 times estimated FY20 earnings, Mondi looks cheap in my book. The share price is still 35% below where it peaked in 2018, despite rising free cash flow and consistently decent margins and returns on invested capital.

Factor in the likely future growth in demand for sustainable packaging and I think this would be a great addition to any retirement-focused portfolio.

Defensive dividends

BAE Systems (LSE: BA) was my top pick for July. Since then, the shares have increased 9% in value. As pleasing as this is, the potential for capital gains wasn’t my prime motivation for highlighting the stock. Rather, it was the defensive qualities of BAE combined with the likelihood of the FTSE 100 giant confirming that it would reinstate its dividend. The latter has now happened. 

At the end of July, BAE’s management confirmed that a 13.8p per share cash return, once proposed and then deferred, would now be made to holders in September. On top of this, an interim dividend of 9.4p per share would be distributed in November to cover the first six months of 2020. 

According to CEO Charles Woodburn, BAE expects “a good second half to the year“. This is, of course, so long as we don’t get a significant second wave of the coronavirus. As things stand, group sales are expected to rise by “a low-single digit percentage compared to last year”.

Despite the subsequent rise in the share price, BAE still looks good value to me. The shares trade on 12 times forecast FY20 earnings. 

Viva Aviva

A third FTSE 100 stock that has restarted paying dividends is insurance firm Aviva (LSE: AV). Back in April, the company withdrew its dividend policy following guidance from the Bank of England.

This month, however, a second interim dividend of 6p per share was declared by management. Like Mondi, this is despite a heavy fall in pre-tax profit over the first half of 2020 (down 29% to a little under £1.1bn).

At 6 times forecast earnings, Aviva look priced for the apocalypse. However, prospective holders should know that the company still plans to review its longer-term dividend policy.

In practice, this will mean a lower but, importantly, sustainable payout. The remaining cash will pay down debt. Considering the latter is on par with the value of the entire company, this strikes me as entirely rational.

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Paul Summers 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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