Many retirement investors choose to invest in solid dividend stocks for long-term income. We can all appreciate the simplicity of dividend investing, there’s no question there. Stocks that give you dividends are paying you to own them — you receive a regular stream of income that involves little or no effort on your part.
But sometimes picking the best dividend stocks can be challenging, especially for those investors relying on a steady income for living expenses. All too often, companies facing financial trouble end up cutting their dividends, causing their share prices to plummet and dealing a double hit to shareholders.
Keeping that in mind, here are two FTSE 100 dividend stocks to consider for their strong income characteristics.
Strong track record
British American Tobacco (LSE: BATS) is a long-time favourite among dividend investors. This is because with 19 consecutive years of dividend increases under its belt, the tobacco giant has a strong track record of consistently raising its dividends.
Certainly, investing in the stock is not without its risks. It is dealing with significant regulatory uncertainty in its core developed markets, as well as the long-term decline in the smoking rate. Earnings growth has slowed from the double-digit percentages that were common just a few years ago to now only sit in the low-single-digits.
That said, management appears to be handling the changing market conditions well and is focusing on what it can itself control. With cigarette volumes clearly under pressure, the company has managed to keep revenues growing by raising prices and expanding its market share.
Meanwhile, the company has also heavily invested in so-called next-generation products, which include tobacco heating products, oral tobacco and vapour. British American Tobacco is now the world’s largest e-cigarette maker, with total revenue from next-generation products totalling £405m in the first half of 2018.
Needless to say City analysts are sanguine on the company’s medium-term earnings potential — they’re currently expecting earnings to grow 3% this year, with a further 9% pencilled in for 2019.
Another safe pair of hands
National Grid (LSE: NG) is also widely viewed in the investment community as another safe pair of hands. The company’s monopoly in the regulated national electricity transmission network results in it earning steady cash flows, which vary only modestly with each year.
This stable business model underpins the company’s ability to pay regular dividends year after year, and explains why National Grid is one of the least cyclical stocks in the FTSE 100.
Nonetheless, investors should not underestimate the company’s own share of regulatory risks. Under pressure to do more to cut household energy bills, the regulator Ofgem has announced plans to introduce much tougher price controls on the industry, which would reduce returns earned by network owners.
That said, Ofgem is currently consulting on the proposed “cost of equity range” and any changes wont affect National Grid until its next pricing regime begins in 2021. Meanwhile, the company has taken some steps to mitigate these risks, by exiting activities like gas distribution, where returns are lower.
What’s more, valuations are undemanding. With shares in National Grid trading at 14.8 times its expected earnings this year, they’re being valued at a significant discount to the market. In addition, dividends currently yield 5.6%, and they’re forecast to grow by at least RPI inflation over the medium term.
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Jack Tang 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.