These are challenging times if you’re investing for income. We’ve seen a rash of dividend stocks cancel their payouts recently. And there are likely to be further dividend setbacks ahead.
If you’re an income seeker, and are in the market for FTSE 100 dividend stocks, where exactly should you look? Which companies have prospects of maintaining their payouts in the near term, and growing them in the longer term? Here are two I think fit the bill.
Historically, some industries have coped better than others during difficult times for the economy. Utilities are one example. This means dividend stocks like the mighty National Grid (LSE: NG) and regulated water business United Utilities (LSE: UU).
Yes, the economic impact of Covid-19 is unusually acute, and the after-effects are likely to drag on for some time. But I think strong utilities like NG and UU remain good buys for anyone investing for income today.
United Utilities issued a trading update last week for its financial year ending 31 March. In a section on Covid-19, it reminded us of its strong credentials for weathering difficult economic conditions.
Management said: “Our revenues are fixed under the regulatory revenue control for the next five years, with shortfalls in any year being recoverable in later years. In addition we have a robust liquidity position extending out for 24 months, which is at the upper end of our policy range. This means that we are well protected against financial shocks that may be experienced as a result of the outbreak in the short-to-medium term.”
The trading update made no change to the company’s expectation of paying a 42.6p per share dividend for its 2019/20 financial year. Nor to its dividend policy, targeting increases by CPIH inflation each year from 2019/20 through to 2024/25.
At a current share price of 898p (a 15% discount to its pre-market-crash level), the aforementioned 42.6p-per-share dividend gives a yield of 4.7%. I’d say that’s an attractive proposition, if you’re investing for income.
Of course, no dividend is ever guaranteed. United Utilities said it recognises “a significant degree of uncertainty associated with how the current situation develops.” Also that the directors “will therefore continue to closely monitor our position and approach.”
However, I’d suggest these are precautionary statements. I wouldn’t read them as a softening-up of investors for a dividend suspension in the annual results in May. I rank United Utilities as a strong candidate to fulfil its dividend policy.
Another strong candidate
National Grid hasn’t issued a trading update since the spread of Covid-19. However, I believe this owner and operator of essential energy assets possesses similar qualities and strengths to United Utilities.
The group’s current dividend policy is “to aim to grow the ordinary dividend per share at least in line with the rate of UK RPI inflation each year for the foreseeable future.” Again, I think this is a FTSE 100 dividend stock in a strong position to fulfil its policy.
City analysts are expecting the company to pay an increased dividend of 48.72p per share for its financial year ending 31 March. At a current share price of 937p (a 12% discount to its pre-market-crash level), this gives a juicy yield of 5.2%.
In my view, this is another highly attractive proposition, particularly if you’re investing for income.
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G A Chester has no position in any of the shares mentioned. 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.