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Here are two FTSE 100 dividend stocks I’d buy in July

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Deciding where to invest your money within the FTSE 100 right now is quite challenging. There are plenty of cheap stocks in the index at present. However, most of these stocks are cheap for a reason. At the same time, almost all of the companies within the index considered to be ‘high-quality’ are trading at lofty valuations.

That said, there are a few companies I believe offer a nice balance of quality and value right now. Here’s a look at two I’d be happy to invest in this month.

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Bunzl

Bunzl (LSE: BNZL) is an under-the-radar company that specialises in providing essential items such as disposable tableware, safety equipment, and hygiene products to businesses. It’s not an exciting company by any stretch of the imagination, but I wouldn’t let that put you off – over the last three years, sales have climbed 40% and return on equity (ROE) has averaged 22%, which suggests it’s a very profitable business.

As my colleague Roland Head recently pointed out, Bunzl shares have often traded at a relatively high valuation in recent years. However, the shares have pulled back a little since early April on news business conditions in the US – the group’s largest market – have been sluggish. As a result, they can now be picked up on a forward-looking P/E ratio of 16.4. I think that’s quite reasonable given the company’s track record.

Aside from its high ROE, one thing I like about Bunzl is its dividend growth track record. The company has now recorded 21 consecutive dividend increases, which is a fantastic achievement, and the sign of a well-managed company. The yield here isn’t super high, at around 2.5%, but dividend coverage is strong at over two times, and cash flow is also very healthy.

Overall, I think Bunzl offers a nice mix of capital growth and dividend potential. With the shares a little out of favour right now, I think it’s a good time to be buying.

Prudential

Another high-quality FTSE 100 dividend stock that’s a little out of favour with investors right now is financial services group Prudential (LSE: PRU). It’s in the process of demerging its UK and European operations, which adds a little uncertainty to the investment case, and it also has significant exposure to Asia, which has scared off some investors due to concerns over slowing growth in this region.

Yet looking past this short-term noise, I see a lot of appeal in Prudential shares. Once completed, the demerger should unlock value. And with wealth across Asia set to rise significantly in the coming decades, Prudential stands to benefit as it has an excellent reputation in the region.

Prudential shares currently sport a prospective dividend yield of around 3.1% and coverage is strong at around three times, which suggests the dividend is sustainable. Analysts are also expecting healthy levels of dividend growth this year and next. With the shares currently trading on a forward-looking P/E ratio of just 10.7, I think they offer a lot of value at the moment.

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Edward Sheldon owns shares in Prudential. The Motley Fool UK has recommended Prudential. 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.

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