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Best UK dividend stocks? I’d buy and hold these for the next decade

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It’s been a tough year for dividend investors, with many big names cutting or suspending their payouts. But income investing is a long-term game. Buying the best dividend stocks you can find today could be a good way to build a passive income for the years ahead.

Today I’m looking at two companies I rate highly as income plays. Both of them have released very encouraging dividend updates in the last few days.

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Dependable defence dividends

FTSE 100 defence group BAE Systems (LSE: BA) has a very distinguished dividend record. Until this year, the firm had not cut or missed a payout since 1993 – 27 years. That record was broken in April, when the company decided to “defer the decision” on its 2019 final dividend.

That decision has now been made. The payout is going ahead after all. This week BAE declared an unchanged half-year dividend of 9.4p and said that last year’s final dividend of 13.8p will also be paid later this year.

It’s good news for shareholders, and I believe BAE can afford the payment. The disruption to its business this year has been relatively minimal, compared to many other companies. Revenue rose by 6% to £9.2bn during the first half of the year and BAE’s order backlog climbed to £46.1bn, from £45.4bn at the end of 2019.

Although operating profit for the half year fell by 10% to £808m due to Covid-19-related delays and other changes, performance during the second half of the year is expected to be better. BAE’s earnings are only expected to be down by about 5% this year, before returning to growth in 2021.

One of the best dividend stocks in the FTSE 100?

Shareholders won’t receive BAE’s delayed 2019 final dividend until September. But despite this delay, I’d argue that this payout will mean the group’s 27-year unbroken dividend record will be maintained.

There aren’t many companies in the FTSE 100 with such a long track record. Given that BAE’s shares also offer an above-average 4.8% yield at current levels, I rate them as a buy for income.

A possible 6% yield

Another company that plans to make up for lost dividend is FTSE 100 insurer RSA Insurance Group (LSE: RSA). Like most of its rivals, RSA suspended its dividend earlier this year at the request of the UK financial regulator.

However, in its half-year results on Thursday, RSA said that it intends to resume dividends “as soon as … prudent “and aimed “to catch up on missed dividend payments over time”.

Is this affordable? RSA’s latest results suggest to me that it should be.

The group’s underlying return on tangible equity was 16.7% during the first half, at the top of its 13% to 17% target range. Although pre-tax profit fell by 7% to £211m for the half year, the group’s underlying performance remained quite strong. So far, losses related to Covid-19 seem very manageable.

It’s too soon to be sure how quickly RSA’s profits will recover. But broker forecasts for 2020 suggest a dividend payout of 27p per share. That would give a dividend yield of 6.2% at current levels.

Shareholders might not receive this cash until next year, but with the shares down by 25% so far in 2020, I think this could be one of the best dividend stocks to buy today for a long-term passive income.

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Roland Head owns shares of BAE Systems. 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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