The coronavirus crisis has forced many FTSE 100 dividend stocks to reconsider their dividend targets. This has significantly impacted the amount of cash that will be returned to shareholders in 2020.
Some estimates suggest FTSE 100 dividend stocks will pay out 50% less this year than they did in 2019.
This is disappointing, but it could be an excellent opportunity for long-term investors. Some of the market’s top income stocks are now trading at a deep discount, which suggests they offer the potential for substantial capital gains and income over the long run.
FTSE 100 dividend stocks on offer
Some major FTSE 100 dividend stocks have fallen by as much as 50% this year.
Shares in these companies are likely to remain volatile in the near term. We don’t know how long the coronavirus crisis will last, and how long it will take the economy to recover afterwards.
However, what we do know is that over the past few decades, the market has experienced many setbacks. The good news is, on every occasion, it has recovered steadily over the following few years.
So, while it is impossible to predict the direction of the market in the short term, it is likely that over the long run, FTSE 100 dividend stocks will produce a positive return for investors.
What’s more, while many companies are currently cutting their dividends, this trend is unlikely to last.
Most businesses are seeing a significant decline in revenue. As such, it makes sense to preserve cash. If they don’t, they could run into financial trouble further down the road.
By cutting dividends, companies have more financial flexibility. That should help them weather the storm. They could even come out stronger on the other side.
Other FTSE 100 dividend stocks are already well placed to navigate through the turbulence.
Insurance groups like Prudential and Admiral have limited exposure to the sections of the economy that are most badly hit. That has helped them maintain their dividends (Admiral has cancelled its special dividend, but its regular payout remains in place.)
These are the kinds of companies that can provide a steady income stream for your portfolio over the long run. Both businesses have substantial competitive advantages and have plenty of financial resources. This should help them prosper and generate attractive capital returns for investors over the long term.
Another way to invest in FTSE 100 dividend stocks is to buy a tracker fund or investment trust.
These take the hard work out of picking stocks for you. They also give a diversified basket of stocks, so you don’t have to worry about the financials of every company in the basket. If one cuts its dividend, another can pick up the slack.
Some of these funds also own international income stocks alongside UK income investments. This provides an extra level of diversification.
Overall, while the short-term outlook for the global economy is far from certain, buying high-quality FTSE 100 dividend stocks could produce attractive returns for your portfolio in the long run.
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Rupert Hargreaves owns shares in Admiral Group and Prudential. The Motley Fool UK has recommended Admiral Group and Prudential. 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.