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2 FTSE 100 dividend stocks I’d buy and hold until retirement

I invest primarily for dividend income these days, and the big temptation is to go for the FTSE 100 stocks with the biggest yields. Right now, if you do just that,  housebuilders should be high on your list. I have a small investment in Persimmon, which is currently on a forecast dividend yield of around 12%.

But I intend to hold my dividend stocks until I retire and beyond, and use the dividends to provide income. On that count, I’m looking for long-term dividend stability, so I’ve been looking for companies with long track records of dividend rises.

Twenty years

According to research done by AJ Bell, looking at the FTSE 100 stocks with the longest records, British American Tobacco (LSE: BATS) has lifted its dividend for 20 years in a row. And it’s not one of those with a very small yield — it’s currently forecast at 7%.

The company has managed to do that because it’s a real cash cow. While it’s working to get its debts down, according to June’s pre-close first-half update, British American is on track to deliver free cash flow for the full year of £1.5bn — and that’s after paying dividends.

Now, there are good reasons to not buy into tobacco companies, and for ethical reasons I’m personally staying out. There’s also the fear that the weed is going to be finally shunned by the human race and all tobacco companies will be out of business. But I really can’t see that happening until long after I have any need for my pension.

I see BATS as providing progressive dividends for a long time to come yet, and I think the 25% share price decline over the past 12 months makes that yield look more tempting.

Cyclical cash

I’ve always had room in my investment portfolio for an insurer and, right now, I’m holding Aviva (and doing quite nicely from dividends). The insurance business is a cyclical one, and you should bear that in mind if you’re looking for regular dividends. The financial crisis showed what can happen if we don’t keep an eye on overstretched dividends.

But the sector has been recovering well for the past five years, and I think RSA Insurance (LSE: RSA) is in the best shape it’s been for a very long time.

The market was uncertain about RSA in the second half of 2018, and the whole sector faces Brexit uncertainty. But sentiment seems to be turning and, so far, in 2019 the shares have gained 12.5% — slightly ahead of the FTSE 100.

But at 574p, the shares are still some way behind their 2018 peak of over 618p, and I think that price represents a bargain. The dividend has been climbing since the firm’s restructuring has been progressing, and we’re now looking at a forecast yield of 5% for the current year. 

Steady

At the Q1 stage, net written premiums were up 3%, with operating profit up modestly. And importantly, the balance sheet was still looking healthy with tangible shareholders’ equity unchanged at £2.9bn. Tangible net asset value per share stood at 279p, again unchanged from December.

All in all, what I’m seeing here is the groundwork we need for a period of stability, with steady earnings and a stable dividend.

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Alan Oscroft owns shares of Aviva and Persimmon. The Motley Fool UK has no position in any of the shares mentioned. 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.