Two FTSE 100 dividend stocks yielding 5%+ I’d buy and hold forever

A soggy set of results from United Utilities Group (LSE: UU) is weighing on its share price, which is down 3.31% as markets absorb their disappointment, but I prefer to look at another number. The £5.3bn group now trades on a mouth-watering forecast yield of 5.1%.

United we fall

In this morning’s final results to 31 March, the group reported a “strong financial performance,” with underlying operating profit up to £645.1m, although I would say that “strong” is too extreme a word to describe a rise of 1.37%. Quibbles aside, the group boasts a “robust capital structure, leading pensions position and consistently responsible gearing,” underlying its solid defensive capabilities.

It increased its final dividend by 2.2% to 26.49p per share, in line with its target of hiking it by at least RPI inflation through to 2020. Revenue and reported operating profit both rose, but profit after tax dropped £18m to £433.9m, which it partly blamed on the disposal of its non-household business a year earlier.

Utilities play

Underlying pre-tax profit also fell £19m to £370m due to a £40m increase in net finance costs. United Utilities suffered a £7m penalty from the regulator, for failings on reliable water service and water quality, which limited return on regulated equity to 7.7%.

There could be troubled waters ahead, with regulator Ofwat set to impose tougher demands from 2020, a worry given this year’s swingeing penalty. This may explain the extra £250m of “additional investment in resilience projects”. If it does take a beating, this could slow the flow of dividends beyond 2020. My Foolish colleague Roland Head outlines other dangers here, but is still a buyer.

United Utilities is a low-growth business, but its 23% share price drop over the last year makes today a good entry point. It is trading at a solid forward valuation of 15.4 times earnings, with earnings per share (EPS) growth forecast at a healthy 16% in the year to 31 March 2019, and 10% the year after.

Going mobile

Mobile phone giant Vodafone Group (LSE: VOD) has also had a bumpy year, its share price trading 13% lower than 12 months ago. However, few investors favourite the stock for its capital growth opportunities, which have been threadbare for years. They prefer to focus on the dividend, which remains one of the most generous on the FTSE 100, with a current forward yield of a stonking 6.6%.

Cover is getting thin at just 0.8. With City analysts expecting EPS to fall 3% in the year to March 2019, it could face a further squeeze, although forecast 16% growth the year after should help. Departing CEO Vittorio Calao has overseen a major transformation, but now the breakneck pace of change looks set to slow, with incoming boss Nick Read looking to integrate new acquisitions and make group assets sweat a little harder. This may generate more cash and squeeze out extra value for shareholders.

Ring it up

Vodafone’s expectations-beating results earlier this month showed that free cash flow before spectrum payments rose by 34% to €5.4m last year, which should help it cover the dividend. A forward valuation of 20.2 times earnings is a little toppy, but it still looks like a good long distance call.

Buy-And-Hold Investing

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harveyj has no position in any of the shares mentioned. 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.