During the stock market crash in 2020, money in your back pocket is arguably the most important requirement for investors. The prospect of having reliable income being paid from a FTSE 100 dividend stock is very appealing. At the same time, dividend cuts by some large firms have meant it’s not easy to get at the moment.
GlaxoSmithKline (LSE: GSK) is one firm that has impressed me recently. It has a solid track record in the FTSE 100, and is well known for being a dividend-paying option for investors. The current dividend yield sits at around 4.85%, which is higher than the FTSE 100 average of 4.23%. More than this, I’d go so far as to say it’s a safe dividend for this year.
There’s only a small chance of a cut given the solid financials reported from a recent trading update. At the end of April, it said Q1 revenue was up 19%, with growth across each of its three main divisions. Profit also came in ahead of plan at £2.7bn, a very healthy figure. When I see strong net profitability like this, it makes me confident that the dividend will continue to be paid. This is because the firm clearly has liquid retained earnings, which is the source from which you pay out to investors as dividends.
GSK should also see its profitability for the rest of the year remaining firm, especially with the work it’s doing to fight the Covid-19 virus. So as a safe dividend stock both for the short and long term, GSK is a clear winner, in my opinion.
Staple utilities for dividend hunters
Severn Trent (LSE: SVT) is the second firm I like for generating investment income. Despite moving into more modern renewable energy initiatives in recent years, the business is fundamentally a water utility company. Right now, I think that’s one of the biggest strengths the firm has for investors. It’s not a complicated business model, and one that has been proven to be profitable in the past.
Over the last financial year, revenue rose by 4.3%. The company knows that it’s unlikely to generate high growth, so seeks to satisfy investors via dividends. Indeed, the company has a policy to grow dividends by at least inflation. This is a smart tactic from the firm, and one that should mean income investors flock towards it, especially at a time when so many companies have cut their payouts.
The current dividend yield sits at 4.23%, so around the FTSE 100 dividend stock average. But as mentioned above, I’d again call this a safe dividend stock. And getting 100% of this dividend is much better than getting zero of a stock previously paying 10%!
Getting income from a dividend-paying stock is fairly simple. But making a call at the moment whether the dividend will be paid for this year is much harder. So look at the Q1 results and profitability of any firm you’re looking to buy into. Check for retained earnings and liquidity on the balance sheet, as this is where the dividend funds will come from.
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Jonathan Smith does not own shares in any firm mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.