I reckon these 2 FTSE 100 dividend stocks may be among the best shares to buy now
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When I go hunting for the best shares to buy for my portfolio, I typically start with FTSE 100 dividend stocks. I believe dividends are a great way to build long-term wealth, yet many investors overlook them.
At the moment, I reinvest all my dividends for growth. When I retire, I will draw those dividends as income. That income will be tax-free inside a Stocks and Shares ISA. Last year was tough for many FTSE 100 dividend stocks, but these two stood by their shareholder payouts and number among the best shares on the index, in my view.
Power giant SSE (LSE: SSE) is transforming itself into a renewable energy giant, developing the world’s largest offshore wind farm, Dogger Bank Wind Farm, in a joint venture with Equinor. It is also part of a consortium for the huge Danish Thor offshore wind tender, and is developing a range of other projects.
This energy stock pays top dividends
SSE has the wind behind it right now, as the UK and other countries commit to net carbon zero. It should find the energy transition a lot easier than many FTSE 100 energy companies, such as BP. The group is looking to generate more than £2bn from disposals, largely from selling off coal and oil-fired plants.
The big attraction for me is the yield. SSE has been one of the best shares to buy for income on the FTSE 100 for years now. It currently yields 5.3%, almost double the FTSE 100 average of around 2.7%. Be warned, cover is thin at just 1.1 times earning. The payout was rebased lower in 2018 but looks safe for now.
I don’t expect that much capital growth from this stock. The SSE share price is up just 7% measured over five years. On the other hand, it does offer me protection from stormy waters. While the FTSE 100 is down 12% over the last turbulent year, SSE is holding steady. It currently trades at 16.1 times earnings. Not cheap, but not expensive either. I’d buy it with the aim of holding for the very long term. As I do with most stocks.
I would consider matching it with international mining giant Rio Tinto (LSE: RIO). I reckon this is also one of the best shares for dividends right now, as it yields an attractive 5%. It boasts more impressive dividend cover than SSE, as its payout is covered 1.7 times by earnings.
Unlike SSE, the Rio Tinto share price offers the potential for growth as well. It is up 234% measured over five years, and 36% over one year.
One of the best shares to buy for income
That is impressive, but I cannot rely on past performance figures. Commodity stocks like Rio Tinto are highly cyclical. When the world is growing and hungry for metals and minerals, Rio Tinto will profit by supplying them. In a downturn, it will do less well.
I am banking on the world coming out of its Covid lockdowns this year, boosted by vaccine success. I am tempted to buy Rio Tinto before the recovery kicks in. Today’s valuation of 12.19 times earnings suggests an opportunity here.
SSE and Rio Tinto look like two of today’s best shares for investors like me who are seeking solid, long-term returns.
There are more great income stocks out there.
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Harvey Jones 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.