The Motley Fool

2 FTSE 100 dividend stocks I’d buy with £1,000 right now

Finding cheap dividend stocks may become more challenging. Certainly, the FTSE 100 is already trading close to its record high, but the popularity of dividend shares may rise as inflation picks up. This could lead to a premium for high-quality income stocks. That’s why right now could be the perfect time to buy these two dividend shares for the long run.

Improving performance

Reporting on Wednesday was insurance specialist Direct Line (LSE: DLG). The company announced a rise in gross written premiums in the first quarter of the year, 4.2% higher than in the same period of 2016, with Motor own brands increasing 11.2%. This was an impressive performance given the high degree of competition and the high levels of consumers shopping around for the best deals.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Direct Line continues to target a 2017 combined operating ratio of  93-95% for ongoing operations. It is also on course to achieve its aim of reducing commission and expense ratios during the year. And with investment income in line with expectations at £42m, the company is on track to achieve a 2.4% yield.

With a dividend yield of 6.7%, Direct Line is one of the highest-yielding shares in the FTSE 100. Its shareholder payouts are currently covered 1.2 times by profit, which indicates they are sustainable and could grow in line with rising profitability over the medium term. Certainly, there are risks to the insurance industry from a squeeze on consumer spending and may lead to greater competition. However, with a strong brand and sound strategy, Direct Line appears to be a worthwhile income play for the long run.

Continuing recovery

Since Aviva (LSE: AV) embarked on its turnaround a few years ago, the company’s financial performance has improved dramatically. It has become more efficient, more dominant after the Friends Life merger, and it has been able to increase dividends at a brisk pace.

In fact, Aviva’s dividends per share have increased from 15p in 2013 to a forecast 25.9p in the current year. This is an increase of almost 15% per annum, with more growth on the horizon. The company plans to raise its payout ratio to around half of net profit as a dividend per year. This means that in 2018 it is forecast to yield 5.3%.

Looking ahead, a further reorganisation of its business model could lead to improving profitability. Aviva is seeking to become even more efficient and alongside the synergies realised from the Friends Life merger, this could lead to a higher dividend over the medium term.

With the stock trading on a price-to-earnings (P/E) ratio of 10.4 and being forecast to increase earnings by 8% next year, Aviva seems to be a sound income stock to buy at present. That’s especially the case since there are relatively few FTSE 100 stocks offering a 5%+ yield and a rating of less than 10.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Peter Stephens owns shares of Aviva and Direct Line Insurance. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.