Brexit uncertainty is showing no signs of abating. Last night, MPs voted against Theresa May’s Brexit deal by a huge majority, and as a result, we still don’t have any idea as to how Brexit will play out or how it will impact the UK economy.
Given that Brexit could potentially have a negative impact on UK economic growth, I think it’s important, from a risk-management point of view, that investors diversify their portfolios and own a number of stocks that are not overly exposed to the UK economy. With that in mind, here’s a look at two FTSE 100 dividend stocks that I believe could be worth considering as part of a diversified portfolio, with Brexit uncertainty remaining elevated.
A global hotel group
InterContinental Hotels (LSE: IHG) is an international hotel company that owns an impressive portfolio of hotel brands including InterContinental, Holiday Inn and Crowne Plaza. The group owns over 5,500 hotels across 100 different countries, so a Brexit-related economic downturn here in the UK is unlikely to be a significant problem for the company.
What I like about InterContinental Hotels is that the company should benefit from a number of powerful demographic trends in the years ahead. For example, Baby Boomers (those born between 1946 and 1964) are heading into retirement in droves (around 10,000 per day in the US alone) and this demographic generally likes to travel. This should provide tailwinds to the tourism industry. Then there’s the rise of wealth across the world’s emerging markets to consider. This should also be a boost for hotels over time. Finally, technology has made the process of booking a hotel so much easier (and cheaper) and this should be another growth driver for the industry.
IHG shares pulled back in the second half of 2018, and at the current share price, they trade on a forward-looking P/E of 16.8 and offer a prospective dividend yield of 2.4%. I think that’s a reasonable price to pay for this international company.
A global oil giant
Another FTSE 100 dividend stock that I think could provide an element of protection from Brexit is oil major BP (LSE: BP). As an energy company that has operations in 70 countries around the world, a Brexit downturn is unlikely to make much of an impact on the group’s fortunes.
One thing that really appeals to me about BP is its huge dividend yield. With the total dividend payment for FY2018 likely to be just over 40 cents per share, investors buying now can pick up a yield of around 6.1%, which is hard to ignore when you consider the dismal interest rates on offer from savings accounts here in the UK at present.
BP’s share price has fallen recently on the back of a decline in the price of oil. Essentially, lower oil prices translate to lower profits for the group. However, BP’s break-even oil price – the price needed to cover capital expenditure and dividends – is way below the current oil price, so I don’t think investors need to be concerned about near-term dividend sustainability. With the stock trading on a forward P/E of 11.6 and offering a yield of over 6%, I think it’s worth a closer look.
