I plan to buy the best dividend shares on the FTSE 100

This Fool breaks down two of his favourite dividend shares and explains why he hopes to add to his position in both this month.

| More on:
Bearded man writing on notepad in front of computer

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

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.

Charlie Keough has positions in British American Tobacco P.l.c. and Legal & General Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c. 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.

More on Investing Articles

Investing Articles

£10k in an ISA? Here’s how I’d target a regular £30k+ second income stream

Reliable dividends can help provide a lot more financial freedom. Here's how I'd aim for a substantial second income inside…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Lloyds share price hanging on to 50p ahead of Wednesday’s Q1 earnings report. Where to now?

Down in April and with low earnings expected this week, Mark David Hartley investigates where the Lloyds share price might…

Read more »

artificial intelligence investing algorithms
Investing Articles

Everyone’s talking about AI! Here’s 1 FTSE stock to consider buying for exposure

A hot topic right now is artificial intelligence (AI). This Fool explains how this FTSE stock could offer investors an…

Read more »

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »