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3 FTSE 100 dividend stocks I’d buy that pay more than Tesco shares

I recently suggested the Tesco share price could be a good long-term buy. I like the supermarket’s large market share and sector-leading profit margins. I also rate management highly.

However, I don’t think Tesco shares are particularly cheap at the moment. On 14 times forecast earnings and with a forecast dividend yield of 3.3% for this year, the price looks about right to me. It’s also worth remembering that you can get a 4.4% dividend yield by buying the FTSE 100, without the risk of owning individual stocks.

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If you’re already in Tesco, I’d sit tight. But here are a few stocks I’d consider to boost your dividend income and help diversify your portfolio.

A long-term winner

Motor and home insurer Admiral Group (LSE: ADM) is a well-known name that’s been a star investment for long-term shareholders. The Admiral share price has doubled since 2013 and risen eight-fold since the group’s flotation in 2004.

The firm’s insurance business model allows it to hold less cash than some rivals. This means the company has generated a return on equity of about 50% for at least the last five years. That’s an outstanding level of profitability, far better than most peers.

Strong management has guided the group to steady growth, making Admiral a cash machine for shareholders. Annual dividends have often equalled an entire year’s profits.

The shares looked expensive to me earlier this year. But the stock’s recent retreat has pushed the forecast dividend yield for 2019 up to 6.4%. At this level, I’d rate Admiral as a buy.

Profit from packaging

Another FTSE 100 firm I rate highly is packaging group Mondi (LSE: MNDI). Like Admiral, Mondi enjoys high profit margins.

The group generated a return on capital employed of 18.7% last year. That means £187 of operating profit for each £1,000 of capital tied up in the business. That’s a good performance for a capital-intensive manufacturer, in my view.

The shares fell sharply in the market sell-off at the end of last year, and have yet to recover. But the business still seems to be trading well. Underlying profit during the first quarter was 6% higher than in the final quarter of last year, and the company says net debt fell during the quarter.

Analysts expect Mondi to generate earnings of €1.85 per share in 2019, putting the stock on a forecast price/earnings ratio of about 10. The dividend yield of 4.1% should be comfortably covered by earnings. I rate this stock as a buy at current levels.

A takeover opportunity?

Mining group Anglo American (LSE: AAL) is the smallest of the big three diversified miners listed in the FTSE 100. It’s also the only one with heavy exposure to the platinum mines of South Africa.

The group’s exposure to Africa attracts mixed opinions. Rival mining tycoon Anil Agarwal, who controls a 20% stake in Anglo American, is said to believe the firm should be investing more in Africa. On the other hand, Anglo boss Mark Cutifani has avoided expansion in Africa. Instead, he recently committed billions of dollars to a new copper mine in Peru.

Rumours persist that Agarwal will stage a takeover bid for Anglo. In the meantime, the miner’s shares don’t look too expensive to me, on nine times earnings and with a very affordable 4.7% yield. I think further gains are possible.

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Roland Head owns shares of Tesco. The Motley Fool UK has recommended Tesco. 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.