This year’s stock market crash has seen many FTSE 100 dividend stocks suspend their payout. Some of these stocks — like Lloyds Banking Group (LSE: LLOY) — had high dividend yields and were mostly owned by investors for the income they provided.
Should investors stay put at Lloyds and wait for dividends to return? Or are there better options elsewhere? Today I want to take a look at a FTSE 100 dividend stock I think could help you retire early.
Lloyds: an investment disaster?
The idea of owning high-yield dividend stocks is that you can hold them for long periods and receive a decent investment return from income alone.
Lloyds hasn’t always lived up to this ideal. Although dividends rose steadily from about 1995 to 2008, payouts were then suspended until 2015. When the dividend did come back, it was only a fraction.
Lloyds’ long-suffering shareholders have now seen their dividends cancelled again, thanks to a blanket ruling from the UK regulator in March.
The bank’s share price action hasn’t provided much consolation. The Lloyds share price has fallen by 50% over the last year and by more than 65% over the last five years. Longer-term shareholders have seen even bigger losses — Lloyds stock is worth nearly 95% less than it was 20 years ago.
The stock has provided some generous dividends during this period, but they aren’t enough to wipe out such big losses.
Hunting for quality dividend stocks
I’ve been bullish on the recovery prospects for big banks in the past, and I’ve owned some of these shares myself. But I’m starting to think these big businesses are too dependent on external factors outside their control, such as interest rates and regulatory changes.
This year’s stock market crash has made me look harder for companies that can control their own destinies and deliver sustainable growth.
While Lloyds’ share price has been grinding lower over the last five years, Sage shares have risen by 12%. Since the financial crisis in 2008, Sage’s dividend has risen from 7.3p per share to 16.9p per share.
Is this the right time to buy dividend stocks?
The coronavirus pandemic is an extreme situation. We still don’t know what the full impact will be on the global economy, but in its half-year report this week, Sage warned of “a slowdown in new customer acquisition”.
So far, the company has not cut its dividend. Indeed, the interim dividend for this year has been increased by 2.5%, reflecting the group’s strong financial position.
Sage generates an operating profit margin of more than 20% and only has a small amount of debt. That’s why the company can afford to be confident with its dividend at this uncertain time.
Although the shares aren’t cheap and offer a dividend yield of just 2.5%, I think Sage’s long-term growth will continue. In my view, this is probably the kind of dividend stock that long-term investors should buy.
According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…
And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...
It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…
But you need to get in before the crowd catches onto this ‘sleeping giant’.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Sage Group. 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.