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Forget buy-to-let! I’d buy these 2 FTSE 100 dividend stocks to make a passive income

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Strong house price growth over the past decade means obtaining a worthwhile income return from buy-to-let properties has become increasingly challenging. Higher taxes further complicate the prospect of generating a high net return from property, which could mean investing in FTSE 100 dividend shares is a better idea.

In many cases they offer low valuations, improving dividend outlooks and the prospect of rising share prices. Here are two FTSE 100 shares that could offer those attributes. As such, they could be worth buying today and holding for the long run.

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RBS

The recent quarterly results from RBS (LSE: RBS) highlighted the continued challenges faced by the wider UK banking sector. For example, the bank reported a £900m PPI provision which reduced its operating profit to minus £8m for the quarter. It also experienced competitive market conditions across its retail and commercial divisions, where income fell by 3.1% versus the comparable quarter from 2018.

Looking ahead, RBS is forecast to post modest earnings growth of 3% in the current year. However, next year, it’s expected to record a rise in net profit of over 10%. This could stimulate investor interest in the stock, and help to propel its dividends higher.

In the current year, the company is expected to yield 6.4% from a dividend that’s due to be covered 1.7 times by net profit. This suggests it offers income investing appeal. While there may be more resilient income opportunities in the FTSE 100, the long-term growth potential for RBS’s dividends and its margin of safety could produce strong total returns that make it a worthwhile purchase at the present time.

RSA

Also offering an improving dividend outlook is insurance business RSA (LSE: RSA). Its third quarter results highlighted an improvement in profitability despite market conditions continuing to be highly competitive.

RSA has commenced a cost reduction programme across its UK operations which could enhance its financial performance. This is expected to contribute to a rise in its bottom line of 7% in the next financial year. Since it trades on a price-to-earnings (P/E) ratio of 12.2, the stock currently seems to offer good value for money.

Its dividend yield of 4.7% may not be among the highest in the FTSE 100, but its dividend growth potential is high. For example, in 2021, RSA is forecast to raise dividends per share by 11%. There may be scope to raise shareholder payouts beyond next year, since they’re currently covered 1.7 times by profit. This suggests the stock has ample headroom when making dividend payments, and may allow it to increase them at a similar pace to profit growth over the medium term.

Therefore, an improving financial outlook and a high income return could lead to impressive total returns for the stock. Buying it now could prove to be a worthwhile move.

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Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. 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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