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3 FTSE 100 dividend stocks that could give you a second income

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There are many advantages to investing in FTSE 100 dividend stocks. For example, dividends can boost your total returns from the stock market, especially when reinvested over the long term. Dividend stocks also tend to be less volatile than growth stocks, meaning they often fall less when the market plummets. However, probably the most valuable feature of dividend stocks is that they enable you to build up a second income stream, translating to more financial freedom.

With that in mind, here’s a look at three high-yielding FTSE 100 dividend stocks that could help you build that second income.

Legal & General 

Insurance and investment specialist Legal & General (LSE: LGEN) is one of my favourite dividend stocks. The company is expected to pay out dividends of around 16.4p for FY2018, which equates to a prospective yield of 6.4% at the current share price.

The insurer has put together a nice little dividend growth track record now, having raised its payout for eight consecutive years. And with analysts expecting earnings per share of 29.6p this year, dividend coverage looks healthy, suggesting that the payout is sustainable for now.

Legal & General is a market leader in ‘bulk annuity’ retirement solutions, and recently announced that it had completed the £4.4bn buy-in for British Airways’ pension scheme, which is the largest ever bulk annuity policy arranged with a UK pension scheme. This kind of deal leads me to believe there’s an interesting growth story here, which should help support profits and dividends in the future. On a forward P/E ratio of 8.7, the shares look cheap in my opinion.

Schroders 

Sticking with the financial sector, take a look at investment manager Schroders (LSE: SDRC). Its non-voting shares currently offer a prospective yield of 4.6%.

There’s been a lot of talk about the death of ‘active’ investing in recent years, with low-cost passive funds (ETFs) gaining in popularity. However, I still believe there’s a place for active stock picking, and if Schroders can continue to expand into new markets and also continue to perform well (84% of its assets outperformed their respective benchmarks over the five years to 31 December 2017), I see no reason why the company cannot continue to prosper.

Research house Bernstein agrees, rating the stock as an ‘outperform’ and stating that the attraction of the company is its geographic and product diversification as well as the resulting predictability of flows and earnings. Trading on a forward P/E of just 11, I believe the shares offer value.

Imperial Brands

Lastly, if you’re looking for big dividends, don’t ignore the tobacco sector. Tobacco companies such as Imperial Brands (LSE: IMB) may be facing headwinds from declining smoking rates and government intervention, but they still have billions of consumers across the world to sell their products to, especially in the emerging markets.

Imperial has an outstanding dividend growth track record and has now notched up nine consecutive annual dividend increases of 10%, which is an outstanding achievement. And with the company committed to another 10% increase this year, the expected payout for FY2018 is 188.3p, which equates to a mighty yield of 7.1% at the current share price.

Tobacco stocks are very much out of favour right now as so many investors are focusing on technology and other growth areas. Yet as a contrarian income play, I think the shares have significant potential.

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Edward Sheldon owns shares in Legal & General Group, Schroders (non-voting) and Imperial Brands. The Motley Fool UK has recommended Imperial Brands and Schroders (Non-Voting). 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.