Right now, over a quarter of FTSE 100 constituents support dividend yields of more than 5%. This makes it the perfect time for income-seeking investors to dive into the market.
With this in mind, I’m going to outline three of my favourite FTSE 100 dividend stocks that all yield more than 5% and I believe you can buy and hold forever.
My first pick is RSA Insurance (LSE: RSA). The insurance company tends to fly below most income investors’ radar, but I believe the stock deserves a position in your portfolio.
Over the past six years, RSA’s dividend has grown at a compound annual rate of 16%. During the same time frame, earnings per share have grown at a compound annual rate of 22.3%.
City analysts expect this trend to continue. They’ve pencilled in earnings growth of 25% for 2019, followed by growth of 19% for 2020. The dividend is expected to grow by 20% and 19%, respectively, in these years.
One of the reasons why I like RSA as an income investment is that the company provides an essential service. For most people, property insurance is a crucial expenditure, and the market is only growing.
With this being the case, I think RSA should be able to continue to grow in line with the market for many years to come and distribute a healthy amount of its income to investors along the way.
My second buy-and-hold-forever income play is Sainsbury’s (LSE: SBRY). While shares in this supermarket giant have come under pressure recently, due to concerns the group is struggling for direction, I think long-term prospects for this company are bright.
Food and household supplies are necessities and, as one of the largest retailers in the country, Sainsbury’s will always have a captive audience.
Still, as noted above, the group’s growth is something to worry about. Analysts think earnings per share will decline by 16% in 2019, due to rising costs and falling sales. However, the company’s dividend is covered 1.9 x earnings per share, which suggests the distribution is safe for the time being.
With a dividend yield of 5.2% at the time of writing, investors will be paid to wait for the company’s turnaround to take hold. On top of this, the stock is currently trading at an attractive multiple of just 10.1 times forward earnings, around 30% below the industry average.
My final income pick is DS Smith (LSE: SMDS). Over the past six years, this packaging producer has built itself into one of the largest in Europe, through a combination of sensible acquisitions and organic growth.
During this time, net profit has grown at a compound annual rate of 14%, and revenue has increased at an annual rate of 9%. Shareholders have been exceptionally well rewarded since 2014 as well. The dividend has grown at a compound annual rate of 12%.
As long as DS keeps doing what it has been doing successfully for the past six years, I think the stock will continue to produce impressive returns for shareholders for the foreseeable future.
Today, you can own a stake in this company for just 10 times forward earnings. City analysts are predicting earnings growth of 26% for its current financial year. The shares currently support a dividend yield of 4.7%.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith. 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.