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

Looking for a FTSE 100 (INDEXFTSE: UKX) stock that’s lifted its dividend for 20 straight years and now offers a 7% yield? Read on.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »