The Motley Fool

Why I’d dump buy-to-let and buy these FTSE 100 dividend champs instead

Image source: Getty Images.

Over the past few decades, buy-to-let investing has generated a fantastic amount of wealth for investors. 

However, recent changes to the way buy-to-let properties are taxed, coupled with new regulations to make landlords more accountable for their properties, mean that this asset class is much less attractive than it once was.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

With this being the case, today I’m looking at two FTSE 100 dividend champions that I think might be a better investment than buy-to-let over the long term.

Global giant

The first company I think has much better prospects is Diageo (LSE: DGE). And here are several reasons why.

First of all, the company owns a portfolio of some of the best selling and most recognisable alcoholic beverage brands in the world, including Guinness. These brands have loyal customer followings and are virtually irreplaceable. 

On top of this portfolio of valuable brands, the company has a presence in virtually every country around the world. So, no matter what happens to the UK after Brexit, Diageo’s growth should continue.

Thirdly, Diageo is a cash machine. Last year, the firm generated around £2.5bn of free cash flow before the payment of dividends, giving a yield of approximately 3.5%. The dividend only cost the group £1.6bn, so it looks to me as if the company has plenty of headroom to increase its dividend over the next few years.

If management decides to devote all of its free cash flow to dividends, Diageo’s yield could hit 3.5% in the near term, up from 2.4% today.

Considering all of the above, Diageo’s globally diversified income stream from a portfolio of multi-billion dollar brands is a much better investment than buy-to-let, in my opinion.

Long term income

My other FTSE 100 income pick I think is a better buy is savings and investment group Legal & General (LSE: LGEN).

What I really like about Legal & General is the fact that it is designed and built for the long term. What I mean by this is that, as one of the largest retirement savings companies in the UK, customers have to trust that the business will be around when they retire in several decades. Therefore, management has to act conservatively and not take excessive risks. I think this provides an excellent foundation for dividend growth.

The stock currently supports one of the highest dividend yields in the FTSE 100 of 6.1% and, on top of this, it’s trading at a bargain basement valuation of just 8.8 times forward earnings. Usually, such a low valuation is a signal that the market believes there’s something wrong with the business, but I can’t find anything amiss here. 

So I believe investors should make the most of this rare opportunity and snap up shares in FTSE 100 dividend giant Legal & General today.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Diageo. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.