The best FTSE 100 dividend stocks to buy today

Share prices are recovering, and FTSE 100 dividend yields are strengthening again. Here are five on my potential ‘buy’ shortlist.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 share prices have been recovering strongly in 2021 as the pandemic threat recedes. At the same time, many of the dividends that were cut during the early days of the crisis are bouncing back.

I invest mostly for dividends, and I recently wrote about my approach to finding the best long-term dividend stocks. Here, I’m going to expand on that by outlining some more FTSE 100 shares I have on my buy list.

BP (LSE: BP) cut its dividend in 2020, choosing the early days of the crash to announce its new Net Zero programme. BP aims to cut 30-35% of emissions by 2030, increasing its low carbon investment 10-fold in the same timescale. That seems ambitious for an oil company.

The BP share price crashed, and it’s still way down on its pre-pandemic level. But that’s given the rebased dividend yield a boost. The new level of 5.25c per quarter has already been lifted, to 5.46c in Q2 this year. I reckon that’s a yield of approximately 4.5% on the current share price.

BP isn’t without its risks, for sure. Being in the volatile oil business is a big one all by itself. And we’ve seen how oil prices can gyrate during times of uncertainty. So yes, I see a risk that the BP dividend might falter again in the future. But I think the company will do everything it can to avoid it.

Cyclical, but safe dividend?

BP might not offer the biggest yield, and neither does my next pick, BAE Systems (LSE: BA). In this case, we’ve a likely forward yield of around 4.2%. That’s pretty much in line with the FTSE 100 average, expected to come in at around 4.1% for 2021. But many of those stocks boasting bigger yields can’t offer the same level of cover by earnings.

BAE’s dividends have been covered around twice by earnings in recent years. And the same looks to be true at the moment, judging by the current outlook. That gives me more confidence the company can maintain its dividend and keep its progressive payments going in the coming years.

The defence business can be a bit cyclical, which is a risk. And it can keep valuations down. The BAE share price has had an erratic five years too, with an overall rise of less than 10%. That didn’t come close to matching the Footsie.

I do think there’s a risk that the shares could be seen as fully valued now too, after a strong run in 2021. But, overall, BAE is definitely a long-term dividend candidate for me.

FTSE 100 sector weakling

GlaxoSmithKline (LSE: GSK) surprises me a little. At least its lacklustre share price performance of recent years does. Maybe it’s because it doesn’t feature in the world of the Covid-19 vaccine the same way AstraZeneca does. But Glaxo has been reinventing its drugs development pipeline in the same way as its FTSE 100 competitor.

Over the past five years, AstraZeneca shares have soared by almost 80%. But at the same time, GlaxoSmithKline shareholders have seen only a little over 15%. Glaxo’s earnings have only been gaining modestly, and we even saw a dip in 2020. So that might well lie behind the underperformance.

Then there’s the dividend itself, which has been held at 80p for years. It was less than 1.5 times covered by earnings in 2020 too. Maybe the shares will pick up once we see enough earnings and dividend growth? Or maybe there will need to be a cut? That’s a risk.

In the meantime, the annual 80p would yield 5.7% on the current GSK share price. AstraZeneca, by the way, is set to yield just 2.5%.

Cash generative sector

I’ve almost always owned shares in at least one FTSE 100 insurance company. Currently I hold Aviva, but here I’m looking at Legal & General (LSE: LGEN). This is a company in a sector where earnings can be a bit wobbly over the short term.

Legal & General saw earnings per share dip 28% in 2020. But against the coronavirus background and the devastation to the financial sector, I think that was fine. And the dividend last year didn’t falter, held steady at 17.57p per share, though cover did drop to less than 1.3 times.

Things are already looking up for 2021. Forecasts suggest a yield of 6.3% for 2021. And if predictions come good, we should see cover by earnings of 1.8 times. That’s a good bit safer, and gives me some confidence in the yield. The stock is on a P/E of about eight too, which looks cheap to me even considering the risk.

And the risk isn’t insignificant. We are, after all, talking about a financial sector stock here. And we’re heading into a period of likely economic instability, with inflation already climbing. Still, on balance, I might add Legal & General to my investments.

Perennial FTSE 100 favourite

I just couldn’t finish this look at top FTSE 100 dividends without including National Grid (LSE: NG). The company’s a long-term favourite among income investors, because of the reliability of its dividend stream. Yes, it’s in a regulated industry, and I tend to be wary of regulatory interference in a free market. But does that really matter if the cash keeps flowing into shareholders’ pockets?

The latest gas price crisis has shown the big advantage of National Grid among stocks in the energy market. It doesn’t matter who sells the actual gas and electricity to end users, or who goes bust in a price crunch. National Grid just distributes the stuff, and gets its money anyway.

Cover by earnings is a bit low, which is another thing I generally dislike. It should be only around 1.3 times this year. But in this case, it doesn’t matter so much. The company has such a clear outlook on its business that it doesn’t need the same safety margin.

The dividend yield? Forecast at 5.2%. It’s on my list.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended GlaxoSmithKline and National Grid. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »