Key points
- FTSE 100 companies can be great income stocks
- Some corporations could see growing earnings over the next decade
- Rising earnings could support dividend growth
When looking for income stocks, I like to focus on high-quality, blue-chip companies such as those listed in the FTSE 100.
While there is always a place in my portfolio for smaller businesses, when it comes to income, I believe larger enterprises tend to have more substantial balance sheets. This is a quality I look for in potential income investments.
With this in mind, here are some dividend stocks I would buy for my portfolio today, to hold until 2030.
Dividend champions
The first companies on my FTSE 100 income list are the insurance groups Legal & General and Aviva. These corporations offer pension and life insurance products, among others. This suggests they operate a conservative business model built for the next few decades. They cannot risk going out of business and leaving millions of consumers in the lurch.
As such, I think they would make perfect income investments for the next decade. They are likely to set their dividends at sustainable levels and focus on long-term growth rather than short-term profit. Both companies offer dividend yields of around 6%, at the time of writing.
Some risks they could encounter going forward include regulatory headwinds. Regulators may force them to reduce their dividends if they believe they are not holding enough capital to meet obligations.
FTSE 100 growth and income
I would also acquire Dechra Pharmaceuticals for my portfolio of income stocks. Although this company only supports a dividend yield of 1%, at the time of writing, it has a strong presence in the animal pharmaceutical market. It also has a robust product pipeline and fantastic growth potential over the next few years.
These tailwinds could help the enterprise grow its earnings substantially over the next few years. And this growth could provide headroom for the firm to raise its dividend further from current levels.
Of course, this is not guaranteed. Competitive headwinds could hit growth and profit margins, curbing the amount of cash Dechra can return to its investors.
Mining bonanza
The mining industry is currently experiencing somewhat of a goldilocks moment. Cost savings from automation as well as surging commodity prices are two of the factors enabling the industry to report blowout profits.
At the time of writing, shares in BHP and Rio Tinto currently offer dividend yields of up to 10%.
With governments worldwide planning to spend significant sums over the next couple of years to reinvigorate economies following the pandemic, I think the current commodity boom can continue. As such, I am excited about the outlook for BHP and Rio. They may be able to maintain their dividends at current levels in this environment.
Despite this bright outlook, commodity prices can fall just as fast as they rise. This means there is no guarantee that either of these FTSE 100 companies will maintain their payouts. Profits could slump if commodity prices come under pressure.
