I’m always hunting for high-quality FTSE 100 dividend — rather than growth — stocks. I’m a believer in the ‘bird in the hand’ theory — I’d rather be paid cash (in the form of dividends) now than wait for growth tomorrow.
Of course, long-term investing is about balance and diversification. The top dividend payers today may not be the same in 10 or 20 years’ time. Equally, dividend policies are subject to change that could quickly alter the balance of a portfolio.
However, there’s something to be said for large, stable FTSE 100 dividend stocks in defensive or non-cyclical industries. I’ve picked out two of my current favourites that investors should consider for some additional yield.
Industry-leading biotech company
GSK (LSE: GSK) is one of the FTSE 100 stocks I’ve got my eye on. Shares in the biotech/pharma giant are down 9.5% in the past 12 months and sitting at £15.14 as I write on 21 March.
The tariff war being waged by President Trump, combined with the threat of reduced HIV funding, have put the company’s valuation under pressure of late.
However, I do like GSK as a market leader in a non-cyclical industry that pays handsomely. Its shares have a dividend yield of 4%, above the Footsie average of 3.5%.
Another factor I like is size. GSK is a giant of the UK large-cap index with a £62bn market cap. Throw in its rich history as a dividend payer and it’s certainly one to look at.
I also like its shareholder-friendly policies. Management recently announced an additional £2bn is to be returned to shareholders within 18 months of its FY24 results date.
Of course, geopolitical risk is heightened for a multinational corporation such as GSK. Should we see further tit-for-tat tariffs, that could put more pressure on the share price.
That’s in addition to the long-standing risks facing market leaders in the industry such as uncertain drug trial success and unforeseen regulatory changes.
Top consumer stock
The other Footsie dividend stock for investors to consider right now is J Sainsbury (LSE: SBRY). The supermarket giant also boasts a track record of consistent dividend payouts and operates in a typically non-cyclical industry.
Groceries are a fiercely competitive business and margins are razor thin. There’s Tesco to compete with among many others trying to compete on product range and price.
However, Sainbury’s is a strong brand and boasts a £5.6bn market cap right now. When you consider the company’s current yield of 5.5%, I think it’s one that could have some merit.
It does carry significant liabilities on its balance sheet with a net debt position (including lease liabilities) of £5.5bn. Of course, the use of leverage can amplify return on equity for the company’s shareholders but increases the risk of financial stress or default.
The supermarket game can change quickly in the form of product shortages, new entrants and price wars. While I do think J Sainsbury’s higher yield can compensate for this versus peers, it doesn’t come cheap given a price-to-earnings (P/E) ratio of 34.
Verdict
These are just two of my current favourite FTSE 100 dividend stocks that I think are worth a look.
They each have a strong market position in typically defensive industries. That could make them good candidates to add some yield to a diversified buy-and-hold portfolio.
