Successful dividend investing involves more than just buying stocks with the biggest yields. The key to building a healthy long-term passive income is selecting shares that can pay a sustainable and growing dividend over time.
My own investment portfolio is packed with companies with competitive advantages (or ‘economic moats’, as billionaire investor Warren Buffett calls them), and that operate in growing markets. I’m also looking for firms that generate lots of extra cash that they can then distribute to their shareholders.
With this in mind, here are two FTSE 100 dividend stocks I currently own. I’m tipping them to deliver excellent dividend growth over the coming decade.
Diageo
Drinks giant Diageo (LSE:DGE) has a product portfolio packed with leading brands like Captain Morgan, Guinness, Baileys, and Smirnoff. It provides the bedrock for the company to raise annual dividends year after year.
In fact, dividends from Diageo shares have risen consistently for more than 30 years. That’s despite the ever-present threat from rising costs.
The FTSE firm’s incredible brand power means that its drinks remain in high demand at all points of the economic cycle, keeping profits moving higher. In fact, the company can even get away with raising prices even during cost-of-living crises.
To illustrate the point, organic net sales rose 6.5% between January and June. A 7.3% advance in price/mix during the first half of the year more than offset a slight 0.8% decline in volume. So pre-tax profits rose 8% from a year earlier.
Encouragingly the firm is using its popular labels to exploit rapidly-growing parts of the market, too. Its Guinness 0.0 drink has proved a hit in the increasingly lucrative non-alcoholic segment, for example, while it hopes its new Don Julio Rosado Reposado tequila will help it make further inroads in the premium part.
Unilever
Unilever (LSE:ULVR) is another stock that benefits from terrific customer loyalty. In fact it has 14 brands in its goods portfolio that generate annual revenues in excess of €1bn. These include Dove soap, Magnum ice cream, and Surf laundry detergent.
Just like Diageo, these products have immense pricing power and remain in high demand during good times and bad. There are other parallels between these two FTSE 100 shares as well.
Both UK blue-chip shares have considerable geographic footprints that span the globe. Unilever sells its products in more than 190 countries.
Not only does this protect group profits from difficulties in one or two territories, it gives exposure to fast-growing emerging markets as well.
What’s more, the company’s focus on the defensive food, personal care, and household goods sectors gives earnings extra resilience during tough times and the means to keep growing earnings and dividends. Underlying sales leapt 9.1% during the tricky first half of 2023, as price growth of 9.4% outweighed a 0.2% volume decline. This meant pre-tax profit soared by more than a fifth (20.8%) year on year.
Unilever has to spend massive sums on marketing to keep its brands selling well. But despite this earnings headwind the company remains a great stock to own.
