I own a basket of FTSE 100 dividend stocks in my investment portfolio. I believe this selection of companies provides the perfect foundation for my investing. Blue-chip stocks tend to have less risk than smaller businesses. That’s doesn’t mean they’re risk-free.
Every investment has at least some level of risk. However, larger organisations have more checks and balances in place to prevent problems emerging.
Many FTSE 100 companies today look cheap. As such, I’ve recently been reviewing some dividend stocks to see if they could be worth adding to my portfolio.
FTSE 100 dividend stocks
I believe that one of the most attractive income investments in the FTSE 100 today is utility provider SSE (LSE: SSE). Utility businesses tend to be desirable income investments because utility services perform in a stable industry. Companies can rely on long-term contracts with customers, which produce a reliable income stream. SSE is no different.
The group has long been considered one of the UK’s leading blue-chip income stocks. At the time of writing, shares in the business currently support a dividend yield of around 5.5%.
Management has reaffirmed its commitment to the dividend for at least the next 12 months. So, in the near term, the payout looks sustainable. However, there’s no guarantee it will be held at this level in the long run. SSE recently had to cut its dividend to meet capital spending requirements. That could happen again.
Nonetheless, I’d buy the company for its attractive income credentials and its pivot towards renewable energy.
Phoenix (LSE: PHNX) is one of my favourite dividend stocks in the FTSE 100. The company operates a relatively complex business model. It buys books of life insurance and pension policies and then uses its size to push down and costs and free up capital. As life insurance and pension deals can last for decades, the corporation’s cash flows are predictable. That gives it a sustainable income stream to meet dividend payments.
At the time of writing, the stock supports a dividend yield of 7%.
That said, this business can be risky. Pension and life insurance policies are highly susceptible to interest rates. Therefore, a sudden change could throw out Phoenix’s careful calculations and put its dividend at risk. Stock market volatility may also force the company to revisit its cash flow projections. Still, I’m comfortable with these risks, that’s why I’d buy Phoenix for income.
Finally, I’d buy Standard Life (LSE: SLA) for my FTSE 100 portfolio of dividend stocks. This pension and asset manager has a similar business model to Phoenix. That gives it some desirable dividend credentials, in my view. The stock also has several international businesses, some of which the company is selling off and returning the proceeds to investors.
Also, management is pursuing several growth initiatives. These include investing in the company’s wealth management and asset management business. I think these efforts could help support Standard’s dividend in future.
This firm isn’t without its risks. It’s been losing market share in the asset management space to cheaper competitors, and costs have been rising recently. That’s put pressure on the group’s bottom line. If that continues, the dividend could come under pressure.
But, once again, I think these risks are worth accepting for Standard’s 4.8% dividend yield.
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Rupert Hargreaves 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.