The Motley Fool

I reckon these 2 FTSE 100 dividend growth stocks belong in a millionaire’s portfolio

Image source: Getty Images.

If you’re aiming for, or already have, £1m in your portfolio, you need a good balance of stocks to avoid any potential sector-specific shocks that could seriously dent its value. I reckon the following two FTSE 100 dividend and growth heroes should offer the long-term ballast you need to keep growing your money into a big juicy sum.

I’ll drink to this one

My first tip is global spirits giant Diageo (LSE: DGE), which has long been a favourite of mine and has thoroughly justified my faith in it.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The share price has almost doubled in the past five years, during which time it has moved unerringly upwards, with 22% growth in the past year alone. It now boasts a market cap of £80bn, plus a bar full of household name brands, including Smirnoff, Johnnie Walker, Baileys Irish Cream, Tanqueray and Guinness.

CEO Ivan Menezes has also kept up with shifting attitudes towards alcohol in these more puritan times, which has seen people “drinking better not more” in his words, by focusing on international premium spirits. His strategy has served Diageo well.

Progressive income

Kevin Godbold recently praised the group for improving its figures a bit each year and progressing shareholder returns, and it recently posted 9% growth in full-year revenues, with free cash flow up a healthy 3.4%.

Many investors may overlook Diageo as a dividend stock, because it traditionally has a much lower yield than the FTSE 100 as a whole. This is the case today, as its 2% income is less than half the 4.5% you get on the index. Don’t be deterred, that’s partly because the share price has been rising so steadily so the dividend struggles to keep up. Management has been generous with shareholders, recently upping the full-year dividend by 5% while extending its share buy-back programme to £4.5bn.

The other thing you may notice is that Diageo stock is expensive, trading at a whopping 26 times earnings, against just over 17 times for the index. Again, this is par for the course. The truth is that Diageo is in demand, and you have to pay a premium price for a premium spirits maker. If that puts you off, maybe wait for the next market dip.

High income hero

Some people like a cigarette with a drink, but that’s not the only reason I’m including British American Tobacco (LSE: BATS) in my portfolio fit for a millionaire. This £70bn behemoth currently offers a massive forecast yield of 7%, covered 1.5 times by earnings. That is way above the index average, and offers a nice counterbalance to Diageo.

There is another way it differs – the current valuation is low, trading at just 9.4 times forecast earnings, deep into bargain territory. The existential threat facing tobacco stocks is that smoking kills and people in the developed world are renouncing the habit as a result. However, as Edward Sheldon points out, British American Tobacco has come up with a number of defensive manoeuvres, including heated tobacco and vaping pens, and there’s a potential move into marijuana.

In another contrast, the BATS share price has disappointed, falling almost 30% in the last year to trade at 2011 levels. However, there is a lot of bad news priced into this stock, and sentiment could quickly shift from here. While you wait for the share price to recover, that income will keep rolling in.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.