The 6 safest dividend stocks in the FTSE 100 – would I buy?

Several FTSE 100 companies, including Vodafone and Marks & Spencer, have cut their dividends this year. And analysts reckon there could be more cutters in the pipeline.

Dividend cover — how many times a company’s payout is covered by its earnings — is a measure of dividend safety. Cover of two times or more is generally considered robust.

I’ve hunted through the FTSE 100 for firms with super-strong cover, and found six with cover of over three times. On this measure, they’re the Footsie’s safest dividend stocks. Let’s take a look at them.

As you can see, there’s quite a mix in terms of price-to-earnings (P/E) valuations and dividend yields.

Low yielders

Athleisure retailer JD Sports has the lowest yield at 0.3% and extraordinary dividend cover of 17.7 times. This is because management is using the vast majority of earnings to pursue exciting international expansion in the US, Europe and Asia.

Clearly, this is not a stock for investors seeking an immediate high income. However, I’d happily buy it today for its huge growth opportunity, sector-leading cash generation, and future income potential.

Growth is also currently the primary attraction of fellow sub-1% yielders NMC and Halma. The former is a private healthcare group based in the United Arab Emirates. I took an in-depth look at the stock last month, and continue to rate it a ‘buy’ today. Meanwhile, health and safety products specialist Halma is another company I like, and have tipped in the past. However, I think its current P/E is a little too rich, so I see this one as a ‘hold’.

Surfin’ USA

Equipment rental group Ashtead has ridden the US wave of Trumpian tax cuts and infrastructure spending by expanding aggressively in North America. It’s made dozens of acquisitions and added hundreds of stores.

I’m generally a bit wary of companies that go on massive acquisition sprees, particularly during boom times. The US economy is now in its longest period of expansion on record, and there are indicators it may be coming to an end. With Ashtead’s business being highly geared to the economic cycle, I’m inclined to avoid it at this stage.

High-yield bargain?

Finally, international investment group 3i and British Airways owner International Consolidated Airlines (IAG) both trade on sub-10 P/Es and offer dividend yields of 3.2% and 6.3% respectively. As far as 3i is concerned, I agree with my colleague Vishesh Raisinghani’s positive analysis of the company. Which leaves the question of whether I think IAG is a bona fide high-yield bargain.

IAG’s shares have lost over a third of their value since this time last year. However, it’s a sector-wide phenomenon, with other carriers having been similarly shunned by the market.

This cyclical industry is in a phase of overcapacity, and companies’ margins are past their cyclical peak. The market appears to be pricing-in harder times ahead and a round of survival of the fittest.

Personally, I think IAG has decent strategic and financial strength, and that the current valuation offers a reasonable margin of safety. In a really extreme downturn, the dividend may not be as secure as the high level of cover suggests, but the risk/reward balance makes the stock a ‘buy’ in my book.