The FTSE 100 isn’t short of stocks that might appeal to those wanting to generate an income from their portfolios. Even so, I reckon the quality of these companies varies wildly. Today, I’m highlighting three top-tier stocks I’d buy this month if dividends were a priority.
Significant sales growth
‘Variety goods’ retailer B&M European Value (LSE: BME) is a good example of the sort of stock I’d be interested in. Last month’s Q1 trading update sounded pretty bullish to me.
The company said it had made a “strong start” to its financial year with revenue up 3.1%. Naturally, this rate of growth was a lot lower than last year, due to a lack of lockdown-related stockpiling by shoppers. A normalisation of grocery spending was also seen at the company’s Heron Foods business.
Still, the fact that sales “remain significantly above pre-pandemic levels” gives some indication this is a company going in the right direction. It should also mean the rapidly-appreciating dividends are safe too.
Looking ahead, B&M said there’s a lot of uncertainty as to where consumer spending will go in the near term. I therefore wouldn’t be surprised if the shares lost some of their steam over the next few months.
Notwithstanding this, I’d leave space for this 3.6%-yielder in my income portfolio.
With the gold price failing to respond to the threat of rising inflation, FTSE 100 precious metals miner Polymetal (LSE: POLY) may appear a controversial income pick.
However, I think there’s a lot to like about the company. The £7bn-cap scores high on quality metrics such as returns on capital and operating margins. I also see it as a potential hedge should markets, particularly the US, finally take a breather.
Nevertheless, I’d need to keep in mind is that Polymetal has a relatively small ‘free float’ for a FTSE 100 business. This is the proportion of the company’s shares actually trading. This can accentuate moves up when the stock is in demand. Unfortunately, the opposite is also true.
Then again, it might be argued that the dividend stream is worth the risk. As things stand, Polymetal yields a little over 7%, covered by profits. That’s a lot of income for me to reinvest and compound over time.
It won’t be an easy ride and some diversification is still essential. However, I’d be prepared to buy today.
A final FTSE 100 stock I believe offers me an enticing balance of quality and income is consumer goods giant Unilever (LSE: ULVR).
Like B&M, Unilever doesn’t boast the highest yield in the lead index. In fact, the forecast 3.5% yield is half that offered by POLY. Even so, it’s slightly higher than that generated by the index as a whole (3.4%).
Now, some might say that isn’t much additional compensation for the risks involved in buying a company’s stock. That argument is valid. Unilever’s share price has, after all, been in the doldrums of late, due to inflationary pressures impacting margins.
Then again, I believe the company’s portfolio of ‘sticky’ brands makes it more defensive than most FTSE 100 members. Besides, the company regularly raises its payout and, again, dividends look safely covered by profits. Returns on capital, while slipping recently, remain very decent.
Embracing my contrarian side, I’d buy ULVR for my own portfolio today.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and Unilever. 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.