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Two overlooked FTSE 100 dividend shares I’d buy and hold forever

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The FTSE 100 is currently offering dividend yields that are the highest we’ve seen in years, and I reckon investors really should be locking in today’s top yields while they can.

But I also see a few that I think are overlooked for one reason or another, and they could provide unexpected bargains.

Progressive yields

Building materials manufacturer CRH (LSE: CRH) is one, and I suspect that’s because of its relatively low yields of only around 2.3%. Back in 2013, the company was struggling to get its dividend covered by earnings, but a strategy of growth through acquisition has since seen earnings per share soar from €0.60 that year to €2.07 last year — with forecasts suggesting that should rise to €2.23 by 2019.

A year ago, my colleague Royston Wild was upbeat about the prospects for CRH continuing nicely throughout 2017, and his optimism looks to have been well founded.

While earnings have been rising, the dividend was held steady, and it’s only just started to creep up again. Last year’s payment of €0.68 per share was covered three times by earnings, and analysts are expecting that level of cover to remain steady for the next two years.

On Thursday, CRH unveiled plans for the next stage in its progression, which will include a “new global Building Products division effective 1 January 2019, bringing together our Europe Lightside, Europe Distribution and Americas Products divisions.

The company also aims to improve its EBITDA margin by 300 basis points by 2021, and to “have €7bn of financial capacity over the next four years.

With a share buyback programme also underway, CRH looks in good shape to me, and I like the look of that newly-progressive dividend that’s very well covered. For me that can often be a more attractive proposition than a higher current yield.

Cash from bricks

Moving to the other end of the construction scale, I also wonder if Hammerson (LSE: HMSO) is being overlooked a little, as enthusiasm for the property market goes off the boil. 

Hammerson is a real estate investment trust (REIT), and I also suspect that might dissuade investors who are perusing the FTSE 100 for traditional companies. I think that would be a mistake, as investment trusts have some key advantages for income investors over other kinds of pooled investments, and they can smooth out dividend payments over the long term to best balance returns with the desirability of further investments.

Dividends actually fell back a little in 2016 and 2017, but we’ve been seeing a period of steady EPS growth and the annual cash rewards are expected to yield 4.8% this year and 5% next.

Hammerson, which invests in shopping centres and similar retail properties, saw its shares spike in March after it revealed a speculative approach from Klépierre, which the board rejected. In turn, Hammerson withdrew its own planned bid for Intu Properties in April, with some suggesting that major shareholders opposed the idea.

But overall its share price has held up — we’re looking at a 27% gain since the Klépierre approach was announced. Does this takeover activity suggest that stock valuations in the sector are a bit low and that there might be some bargains here for private investors?

I think so, and with Hammerson intending to focus its activity on more upmarket retail investments, I see a potential cash cow here offering solid dividends for years to come.

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Alan Oscroft 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.