Income investors have had it rough of late. The Covid-19 crisis has pushed 471 UK-listed companies to cut, suspend, or cancel their dividends, according to an analysis of data from dividenddata.co.uk. The FTSE 100, often viewed as a source of safe dividend stocks, has not been spared either; 52 of its members have cut payments to shareholders. But there are still FTSE 100 dividend hero shares out there for UK income investors to buy.
What makes a dividend hero? Well, I would say its a share that has at least maintained its regular dividend payments for a decade. AstraZeneca, Reckitt Benckiser, and RELX meet these criteria and have continued to make payments to shareholders throughout the Covid-19 pandemic.
Dividend safety first
In addition to being dividend heroes, the dividends these stocks are forecasted to pay also look safe. Safety is essential for investors who are relying on income (in the form of dividends) from their shareholdings, perhaps to support spending in retirement.
I am defining safety with forecasted dividend cover. Divide a stock’s earnings per share by its dividends per share, and you get dividend cover. Higher numbers are better. That’s because earnings can drop further before a stock pays more in dividends than it earns in net income, which makes a cut more likely.
| Stock | Industry | Current Share Price |
Dividend Forecast for 2021 |
Earnings Forecast for 2021 |
Dividend Yield Forecast for 2021 |
Dividend Cover Forecast for 2021 |
Forecasted P/E Ratio for 2021 |
| AstraZeneca | Healthcare | 8,643p | 219p | 380p | 2.5% | 1.7 | 22.7 |
| Reckitt Benckiser |
Consumer Goods |
7,358p | 177p | 313p | 2.4% | 1.8 | 23.8 |
| RELX | Consumer Services |
1,704p | 48p | 95p | 2.8% | 2.0 | 17.9 |
Based on analyst estimates for 2021 net income and dividends RELX, Reckitt, and AstraZeneca have the highest dividend cover numbers of all the dividend hero stocks, coming in at 2, 1.8, and 1.7 respectively. None of these numbers is above 2, which is normally where investors call a dividend safe. However, we are not in normal times. If an investor is looking for safe FTSE 100 dividend hero stocks, these are the best numbers out there.
Size and strength
Forecasts have a habit of being wrong. But, investors should take comfort from the fact that for the largest, most stable companies, they are generally more accurate. RELX, Reckitt, and AstraZeneca, being FTSE 100 members, are some of the largest UK-listed companies.
These three stocks are in the healthcare and consumer goods and services industries. Healthcare stocks, like AstraZeneca, benefit from non-discretionary revenues; drugs have to be bought no matter what. People tend to be quite brand loyal, which means consumer goods companies tend to have stable sales. That’s good for household goods titan Reckitt. Although RELX might appear to be a revenue risk – being in the consumer services industry – the bulk of its revenues are subscription-based, digital, mission-critical, and a fraction of its customers’ total costs. That means RELX’s revenues tend to be reliable.
Having stable and predictable revenues usually means the same for earnings and dividend payments. That is good for both forecast accuracy and payments to shareholders.
FTSE 100 dividend stocks
Alas, even relative safety comes at a price. RELX, Reckitt, and AstraZeneca shares have relatively low yields of 2.8%, 2.4%, and 2.5% respectively. For the investor relying on dividend payments, accepting a low dividend yield now might be judged as a trade-off that’s worth making.
So, there we have it: RELX, Reckitt, and AstraZeneca are three safe FTSE 100 dividend hero stocks I’d buy today and hold forever.
