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A 6% FTSE 100 dividend stock I’d buy today, and a falling knife I’d avoid

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I’ve always had mixed feelings about Safestyle UK (LSE: SFE), the leading double-glazing firm.

On the personal side, I once asked for a quote to glaze a whole house, and I suffered one of the worst hard-sell experiences of my life — followed by persistent phone calls after I’d said no.

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But on the investment side, I can’t help but be impressed by years of rising earnings and a strongly progressive dividend yield. Forecasts for 11.25p per share for the current year would provide a yield of 7.4% on Tuesday’s close.

But as I write today, the share price has crashed by more than 20% to 116p, after the company issued a profit warning. Safestyle has confirmed its intention to pay that big divided for the year to December 2017, saying it has a “a strong cash position and robust balance sheet,” and it would yield a massive 9.7% if you bought the shares today. But its sustainability must surely be in doubt now.

Profit warning

Saying that it has experienced “a continuing deterioration in the market resulting from declining consumer confidence,” and that “an aggressive new market entrant” has tightened the competitive screws, the company warned us that 2018 orders have been disappointing.

Underlying pre-tax profit is expected to be “materially below 2017 levels and current market expectations.” Forecasts were already indicating a 30% drop for the year just ended, so I’m expecting 2018 predictions to be significantly downgraded now.

The company does say it has reduced its cost base and has “carried out the planned restructuring of its sales and canvass functions,” but I can’t see that turning things around quickly.

In the current economic climate, Safestyle UK is one I’d avoid.

Reliable yield

For a safer dividend, set to yield 6% in 2018, I’m attracted to Standard Life Aberdeen (LSE: ADN). I’d already been impressed by Standard Life and Aberdeen Asset Management, the two parties to the merger in August 2017, and I see an interesting future.

How that future will look financially is hard to work out right now, after the firm announced plans to sell the majority of its insurance business to Phoenix Group — though Standard Life Aberdeen will continue as asset manager for the divested business. It might take a little while for the markets to get their heads round that one.

The progressive dividend records from the company’s constituent parts have been impressive, and forecasts for the combined firm suggest rises significantly ahead of inflation for this year and next. Cover by earnings might look a bit thin at around 1.3 times, but I’m not too troubled by that.

Cash

Standard Life Aberdeen remains strongly cash-generative, and it’s just lifted its 2017 full-year dividend by 7.5% — I’d say the confidence appears to be there for future cash prospects.

My key take from Standard Life and Aberdeen Asset Management over the years is that they have both been good examples of buy-and-forget investments, and whatever structural changes have happened over time, those who bought for the long term have done well.

Managing sizeable chunks of retirement assets, the company surely has to continue to look to long-term retirement outcomes which will provide for years of future income draw-down.

I think Standard Life Aberdeen will do well for its customers, and possibly even better for its shareholders.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Safestyle UK and Standard Life Aberdeen. 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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