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Have £5k to invest? 2 FTSE 100 dividend stocks I’d buy for my ISA and hold forever

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I reckon that a Stocks and Shares ISA is the perfect vehicle for a long-term investment. There’s no income tax to eat into your dividend income, and no capital gains tax if you’re lucky enough to make big profits.

In fairness, investing in a SIPP for retirement can also be a good tax strategy, depending on your personal position. As always, the important thing is to start investing as soon as possible.

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Today, I want to look at two FTSE 100 dividend stocks that I’d be happy to buy now and tuck away until I retire. These aren’t conventional bargain stocks, with the risks they carry. Instead, I’ve focused on quality, with two companies that I believe have unique advantages.

Understated quality

Industrial conglomerate Smiths Group (LSE: SMIN) has a 160-year pedigree but a very modern focus. Customers include airports and the defence sector, for whom Smiths supplies scanning and other detection products. The group also works with the energy, aerospace and medical sectors.

Chief executive Andy Reynolds Smith says that the firm’s businesses all fit a clear pattern. They should be differentiated, competitive, asset-light and include lots of services and aftermarket sales.

Following this strategy should mean that the group’s operations generate high profit margins and plenty of spare cash. And that’s pretty much what’s happening.

I like these numbers

Smiths has published its full-year results today for the 12 months to 31 July. They look good to me. Headline sales rose by 3% to £2,498m last year, while pre-tax profit was 13% higher, at £376m. The group’s headline operating margin was 17.1%, up from 16.7% the year before.

These numbers exclude the group’s medical business, which is going to be separate from the main group next year. That’s a good decision, in my view. Spinning out this slow-growing and less profitable business should improve the parent company’s profitability and growth rate.

Smiths’ stock isn’t obviously cheap. The stock trades on about 16 times 2019/20 forecast earnings, with a dividend yield of about 3%.

But this group has a long, stable track record and a sensible balance sheet. The dividend hasn’t been cut for at least 22 years and has doubled since 2000.

I view the shares as a long-term buy that could safely be held for 10 years or more, without any stress.

High fashion, high profits

Another company on my quality shopping list is upmarket fashion group Burberry (LSE: BRBY). This 163-year old business appears to have plenty of wealthy customers. It recently reported first-quarter retail sales of £498m, a 4% increase on the same period last year.

Collections designed by new creative chief Riccardo Tisci are said to be delivering “strong double-digit percentage growth” compared to equivalent collections in previous years.

Chief executive Marco Gobbetti still has some way to go to prove that he’s returned this business to sustainable growth. Guidance for the current year is for revenue to be “broadly stable”. Profits aren’t rocketing higher just yet, and sales could be hit by a major economic slowdown.

However, Burberry boasts a fortress-like balance sheet, with net cash of £837m at the last count. It’s also extremely profitable. Although the shares may not seem cheap, on 24 times forecast earnings, I think they represent fair value for long-term buyers. I’d be happy to open a starter position now and average down on future market dips.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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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