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The 3 FTSE 100 dividend stocks I back all the way

Though I am always on the look out for shares that have strong growth potential, income-based dividend stocks always make up the solid foundation of my portfolio. Naturally I only choose the dividend plays I think will increase in value, but the solid yields are what attract my attention. These three stocks are the dividend plays I currently back the most.

BAE Systems

  • Last dividend reported: 13.2p
  • Indicated gross yield per annum: 4.6%
  • Five-year dividend growth rate: 2.01%

In the wake of the merger news between US giants United Technologies and Raytheon, many analysts are looking for other potential defence combinations on this side of the pond – when they do, BAE Systems (LSE: BA), as the UK’s largest defence contractor, is one of the few firms large enough to truly appeal.

Political concerns surrounding the Middle East, and particularly the company’s exposure to Saudi Arabia – where it has its largest single sales contract of 72 Euro Fighter Typhoons – have been weighing on its share price for more than a year. But as it stands, US and UK sales currently make up a combined 63% of its order book, a far more significant percentage.

These concerns, as well as domestic political worries surrounding a potential Jeremy Corbyn-led labour government getting into power (the labour leader being opposed to a nuclear deterrent for which BAE’s Dreadnought submarines make up the backbone) have in fact, I think, made BAE shares a bargain.

BT Group

  • Last dividend reported: 10.78p
  • Indicated gross yield per annum: 7.65%
  • Five-year dividend growth rate: 8.91%

Recently confirming that it would maintain its dividend, somewhat ironically this news first hit me as a red flag – a company offering high dividends is often trying to entice investors to ignore more fundamental issues. However with BT Group (LSE: BT.A) I believe this is actually an opportunity.

High costs, sliding revenues and what some call mismanagement, have more than halved the company’s shares over the past three years, but I suspect this slide is about to change. Now under new management, and in the first year of a three-year turnaround, BT has recently seen an end to an arcane commitment it had that dated from its public company days, effectively making it impossible to make staff redundant. In the wake of this, the company has already announced it will be letting 13,000 staff go. I think the market has yet to catch up with regard to how effective these changes can be for BT, currently making the shares a potential bargain-hunter’s dream. Buyers beware however as the market can stay irrational for far longer than you can stay liquid.

Royal Dutch Shell

  • Last dividend reported: 36.97p
  • Indicated gross yield per annum: 5.63%
  • Five-year dividend growth rate: 5.64%

More of what you might call a steady and strong performer than a revolutionary bet, Royal Dutch Shell (LSE: RDSB) has had decent revenue and net profit growth over the past few years. It is always happy to pass hits along to shareholders, and has managed to reduce its debt levels even in the wake of its BG Group deal in 2016.

While oil prices are once again making news headlines, for the foreseeable future looking like they will hold at fair levels, Shell has announced a $30bn a year capital expenditure plan between 2021 and 2025. Though perhaps worth waiting for a dip in its price before investing, to me Shell is a fine addition to any income-focused portfolio.

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Karl has shares in BT and Shell. 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.