FTSE 100 dividend stocks are a brilliant source of income with world-class yields of anything up to 10% a year. Many easily beat today’s best buy savings accounts with scope for capital growth too once the UK stock market recovers.
If I had no pension at 50 and was happy to take on board the added risk of investing directly in equities, I’d get cracking right away. Investing in dividend stocks is a long-term game, but with retirement still 17 or 18 years away at this stage, there’s still plenty of time to play it.
I’d reinvest all the dividends I earned back into my portfolio for growth today, then draw them as income later, when required. And I’d start with these two top income stocks.
This looks like a good starting point
Insurer and asset manager Legal & General Group (LSE: LGEN) is my favourite dividend stock right now. It’s forecast to pay investors a blockbuster yield of 8.8% in the next year, one of the biggest on the index.
Sky-high yields like this can indicate a company in trouble, as a falling share price automatically drives up the yield. And it’s true that L&G shares have performed poorly, falling 14.97% over five years and 8% over 12 months.
It has been hit by recent stock market volatility, which has reduced assets under management and customer inflows. The uncertainty looks set to drag on as inflation stays high, but at some point markets will turn and with luck, L&G should swing back into favour.
It’s still making money, with operating profit up 12% to £2.52bn last year, while its solvency II coverage ratio is strong. Better still, management hiked that all-important dividend by 5% last year, despite all of 2022’s worries. I’d hope for more of that over time.
One of the safer income stocks
I’d match L&G with a FTSE 100 dividend stock that I’ve always considered one of the safest of all, the UK’s largest electricity transmission and distribution specialist National Grid (LSE: NG).
It operates both in the UK and north-eastern US, and aims to be a low-risk business that delivers a steady supply of dividends and share price growth. Capital is always at risk when buying direct equities, but much less so in this case, I feel.
The National Grid share price is never going to shoot the lights out but it’s up 27.08% over the last five years, and 2% over 12 months.
Unlike L&G, it isn’t available at a bargain valuation, but then it rarely is. It looks fully priced at 16.4 times earnings, which reflects the relative lack of risk. Currently, it yields solid income of 5.3% a year.
Management does need to invest heavily in maintaining and developing its transmissions network, while funding the shift to clean energy. Despite this, its profits, which are regulated, rose a steady 15% last year to £4.58bn.
This is only the starting point. If I was building a portfolio of shares from the age of 50, I’d want to diversify across different stocks and sectors. There are plenty more great FTSE 100 dividends stocks to choose from. Many look dirt cheap following recent dips.