One world-class dividend stock I’d buy today and it isn’t BT Group or Tesco

It’s not possible to buy every FTSE 100 dividend stock that takes my fancy. So I’ve made my choice and bought this one.

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BT Group is the type of FTSE 100 dividend stock I’d normally love to buy. It’s a big blue-chip that’s fallen on hard times. The share price is dirt cheap, trading at just 5.89 times earnings. The yield is high at 6.86%, nicely covered 2.5 times by earnings.

Yet I won’t buy it today. I think incoming CEO Allison Kirkby has a huge job on her hands when she takes the reins in January 2024.

Revenues have been sliding for years, as have profits and the dividend per share. The only figure of note that seems to be rising is BT’s net debt, which topped £18.5bn in March and is heading for £20bn.

Not a good look given today’s high interest rates. Plus it has £40bn of pension liabilities. I’m a contrarian, but I’m not crazy. Plus I’m not sure that dividend is sustainable.

I like this, but don’t love it

I’m more tempted by Tesco. It’s not as cheap as BT, trading at 11.6 times earnings, but it looks better value. The yield isn’t as juicy at 4.3%, covered twice, but looks more sustainable. Its shares have edged up just 4% in the last year, but that’s better than BT’s 21% crash.

Given a choice between the two, I’d instantly plump for Tesco. It may benefit when the cost-of-living crisis eases and shoppers have more cash to spend. This could help it increase margins, now standing at a meagre 2.3%. But grocery is a worryingly competitive sector, intensified by the onward march of Aldi and Lidl. 

Investing is about priorities. I’d be happy to hold Tesco but other FTSE 100 dividend stocks excite me more, notably mining giant Glencore (LSE: GLEN). 

While I’ve dithered over buying both BT and Tesco in recent months, I had no qualms about Glencore. When I saw its share price dip due to concerns over key commodity consumer China, I dived in and bought it on 26 July at 4,726p per share. When it dipped again, I bought more at 4,289p on 1 September.

I’m happy with my pick

So far, I’m down 6.36% overall but these are early days. I’m buying Glencore with a long-term view. China is in a mess but this is reflected in Glencore’s low, low valuation of just 3.9 times earnings.

By contrast to BT, I don’t think Glencore’s problems are of its own making. And compared to Tesco, I think it could accelerate at speed once the commodity cycle turns. Plus it also makes money from oil and gas, where prices are rising.

In the interim, things cold get be bumpy. Glencore has more debt than I would like, at £28bn, but it doesn’t look too scary when set against 2022 revenues of more than £200bn. The dividend is strong but not wholly safe. The forecast yield for 2023 is 9.1%, but that’s forecast to dip to 6.92% next year (still pretty good though).

Last year, Glencore paid a world-class $5.6bn in cash dividends and still found room for a $1.5bn share buyback. I’d like a share of that largesse in future years, and I don’t think BT and Tesco can afford to be as generous.

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.

Harvey Jones has positions in Glencore Plc. The Motley Fool UK has recommended Tesco Plc. 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.

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