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Interest rates are low! 2 FTSE dividend stocks I’d buy

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On 7 May, the Bank of England (BoE) decided to keep the main interest rate unchanged at 0.1%. The BoE website details the progressive decline of interest rates over several decades. As you can see, 0.1% is a record low. In the near future, no bank account will likely offer anything close to a real rate of return. Thus FTSE 100 dividend shares could be a good option for income investors. Let’s take a closer look. 

Dividends in drinks

Our readers may know that legendary investor Warren Buffett has a large stake in The Coca-Cola Company. And my first pick is Coca Cola HBC AG (LSE: CCH) which bottles Coca-Cola drinks for 28 countries, including most of Central and Eastern Europe.

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I believe CCH shares offer UK-based investors an alternative way to participate in the stability and growth of the US-headquartered multinational giant. The Coca‑Cola Company manufactures and sells concentrates to its bottling partners such as Coca Cola HBC.

CCH is a big business, serving around 615m consumers across three continents. It manufactures, packages, and distributes the final products to its trade partners and consumers. Its portfolio has almost 300 brands. In addition to fizzy drinks, other still drinks (water, juices, tea, and energy drinks) make up over 30% of sales. 

Earlier this month, the drinks bottler released its trading update for the three-month period ended 27 March. Sales in April slumped by more than a third as restaurants and other public places that sell the products stayed closed. 

CEO Zoran Bogdanovic said of this: “After a strong start to 2020, March and especially April have been more difficult. [But] our strong balance sheet and liquidity position will support the company through this period”.

Year-to-date (YTD), the shares are down about 25%, hovering around 1,915p. Its current dividend yield stands at 2.8%. The shares are expected to go ex-dividend in July. It also has a history of paying special dividends.

I’d look to buy the dip.

Demand for water

The second company I’d like to highlight today is FTSE 100 member Severn Trent (LSE: SVT), one of the three listed water stocks in the UK. The utility group serves around 8m customers. 

Analysts at Morgan Stanley recently identified several stocks as key picks in uncertain times. And SVT was one of them. This is because no matter how the economy fares in the near future, we’ll all need to continue using water and other utilities in our daily lives.

As you research companies that are likely to keep paying dividends in the coming months, it will be important to see if a company’s earnings can support the payout. In March. SVT’s management said the utility group “will deliver full-year trading performance in line with previous guidance”. These words are likely to bring relief to dividend-seeking shareholders.

On a separate note, utility companies tend to carry high levels of debt on their balance sheets. Therefore, lower rates may mean a positive boost to their bottom lines.

YTD the stock is down about 4% and its price is hovering around 2,425p. Its recent decline has pushed the dividend yield to about 3.9% and SVT shares are expected to go ex-dividend in June.

In 10 days’ time, Severn Trent will release 2019/20 full-year results. I’d analyse the metrics at that time and consider buying this utility stock, especially if the share price declines in the coming weeks.

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tezcang 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.

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