I’m on the lookout for high-quality dividend shares. Where better to look than the UK’s leading index?
The FTSE 100, in my view, is home to some of the best income stocks available. I already own a fair few. I want to buy more.
My plan is pretty simple. I want to snap up undervalued shares and hold them for decades. With the dividend payments I receive, I’ll buy more shares.
It’s tough to whittle it down given the number of top shares on the index. But here are two I think are the best. With any spare change I have in April, I’ll look to pick up some more shares.
British American Tobacco
Let’s get the ball rolling with the stock that has the second-highest yield on the index. Of course, that’s British American Tobacco (LSE: BATS).
Its whopping 9.8% yield is a major draw. However, what’s more attractive to me is its impressive track record when it comes to increasing its payout.
Dividends are never guaranteed. Therefore, when a business has increased its dividend every year since 2000, that’s something that fills me with confidence.
During that time, its payment has increased from around 25p per share to 253.52p for 2023. With management “committed to continuing to reward shareholders with strong cash returns”, that’s another positive sign.
That said, there’s no point in receiving dividends when they’re wiped out by a declining share price. British American Tobacco stock is down 22.6% in the last five years, so that’s a real threat. The business will also face further pressure in the years ahead as governments clamp down with more smoking bans.
However, the business is aware of this. To combat the issue, it has put more focus on its ‘New Categories’ division. Last year, this division achieved profitability two years ahead of schedule.
This feeds more widely into British American Tobacco’s aim to build ‘A Better Tomorrow’ by becoming “a predominantly smokeless business by 2035”. Trading on just 6.5 times forward earnings, its shares also looks dirt cheap to me.
Legal & General
Switching over to the financial industry, next up is Legal & General (LSE: LGEN). Its yield registers slightly lower than its counterparts at 8%. Nevertheless, that’s still one of the highest on the Footsie and double the index average.
Like British American Tobacco, it has also placed emphasis on rewarding shareholders. Between 2020 and this year, the firm is on track to return up to £5.9bn in dividends.
The stock has wobbled recently. Interest rates have detrimentally impacted asset valuations. Deposits levels have also been volatile in recent years as consumers have tightened their belts.
However, in Legal & General, I see a business in healthy shape to excel in the long run. It has strong brand recognition and a solid customer base.
In my opinion, at 254.1p, the stock looks too cheap to pass on. It’s trading on just nine times forward earnings. I’m keen to buy more shares now at a slashed price. I think they could be a long-term winner for my portfolio.
