FTSE 100 dividend shares could prove to be worthwhile buys for the long term. Not only do they offer the potential for investors to obtain an inflation-beating income return, in many cases they may offer protection against the prospect of difficulties for the UK economy as Brexit moves ahead.
One company offering an improving dividend outlook is FTSE 100 pharma stock AstraZeneca (LSE: AZN). Set to experience rising profitability over the medium term, this could boost its dividend prospects.
Also offering an impressive income outlook is a smaller company which reported positive news on Tuesday.
That company in question is real estate investment trust (REIT) Capital & Regional (LSE: CAL). The shopping centre specialist released news that it’s received formal consent for its extension and development plans at The Mall Walthamstow. It will transform the Walthamstow town centre, according to the company’s update, with an 86,000 sq ft extension planned for the existing shopping centre as well as up to 500 new residential homes.
Looking ahead, the plans could help to boost Capital & Regional’s bottom line growth rate over the medium term. The company is expected to report a rise in earnings of 7% in the current year, followed by additional growth of 6% next year. This suggests its strategy is performing well, with the slowdown in the UK economy not seeming to have affected its financial performance.
With a dividend yield of around 8.5%, the stock has significant income appeal. Its price-to-earnings (P/E) ratio of around 12 indicates it offers a margin of safety, which suggests that significant total returns could be on offer over the long run.
AstraZeneca’s income potential also appears to be positive. Certainly, a glance at its track record of dividend growth indicates that it lacks appeal. However, the company has faced major challenges in recent years from the loss of patents that has resulted in rising generic competition and a lack of income growth. This has forced it to freeze dividends for a number of years.
In future, though, the company’s aggressive acquisition activity is set to yield positive results for its income profile. AstraZeneca is expected to deliver bottom-line growth of 12% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1.8, which suggests that it could offer good value for money. Moreover, it means that dividend growth could begin to improve from 2019 onwards. This could help to boost its dividend yield of 3.6%.
With AstraZeneca also having a defensive business profile, it could perform well in a variety of market conditions. For investors who are concerned about the outlook for the UK economy, this attribute may make it more appealing. As such, now could be the right time to buy it ahead of what may prove to be a period of stronger financial performance that leads to rising dividends.
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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. 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.