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Here are 2 cheap FTSE 100 dividend stocks I’d buy and hold forever

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UK investors are facing a dividend drought. Over half of the FTSE 100 companies have cut, cancelled or suspended their dividends. According to an analysis of data from dividenddata.co.uk, 471 UK-listed companies have slashed payments to shareholders. But, there are some oases in the dividend desert. There are still FTSE 100 dividend hero stocks out there.

What makes a dividend hero? Well, I would say its a share that has at least maintained its regular dividend payments for a decade. Perhaps, more importantly, they have continued to pay dividends throughout the coronavirus crisis. FTSE 100 dividend hero stocks come in all shapes and sizes. I have looked at what I think are the safer options before. Now its time for some cheap ones.

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FTSE 100 dividend heroes

British American Tobacco (LSE: BATS) and Legal & General (LSE: LGEN) meet the criteria of FTSE 100 dividend hero stocks. They also look cheap right now based on their forward (or forecasted) price-to-earnings ratios. Also, these two stocks have high forecasted dividend yields.

Shares of Legal & General are available for around 178p right now. Analysts are forecasting an 18.94p dividend for 2021. The forward dividend yield on Legal & General shares is a hefty 10.6%. And, as I said, shares in this life and general insurer and investment manager look cheap. The consensus for 2021 earnings per share is 29.07p, which means these shares trade on a forward price-to-earnings ratio of just 6.13.

Stock Industry Current
Share
Price
Dividend
Forecast
for 2021 
Earnings
Forecast
for 2021 
Dividend
Yield
Forecast
for 2021
Dividend
Cover
Forecast
for 2021
Forecasted
P/E Ratio
for 2021
Legal & General Financials 178p 18.94p 29.07p 10.6% 1.53 6.13
British American Tobacco Consumer
Goods
2,698p 227p 347p 8.4% 1.53 7.78

British American Tobacco also looks cheap trading on a low forward price-to-earnings ratio of 7.78. With shares price around 2,698p and a forecasted dividend of 229p, British American Tobacco shares also have an impressive forward dividend yield of 8.4%.

Trick or treat?

Cheap shares can sometimes be a trap. They might not be bargains. Instead, they may be low priced because that is what they are worth. The economy has been drastically affected by the Covid-19 pandemic. So, to call these cheap shares genuine bargains we have to be confident their businesses are in good health.

Legal and General’s half-year report, released in August this year, was encouraging. Some divisions had suffered, from rising insurance claims, for example, but others had performed well leading to operating profits falling by a modest 6%. Net income fell by 67%, which is dramatic. However, non-cash charges, made to account for falling interest rates affecting Legal & General’s insurance reserves, were the cause. Trading conditions are improving, and Legal & General’s solvency and liquidity are not in doubt.

British American Tobacco reported robust performance in emerging markets, in its half-year report. Cigarette volume sales were up by 0.5%, but overall, revenues were flat compared to the first half of 2019. However, the company’s management is confident of achieving high single-digit earnings per share growth over the medium term. Perhaps this optimism underpinned the decision to maintain a 65% of earnings dividend payout ratio.

Both of these shares have attractive dividend yields. Also, both have low forward price-to-earnings ratios their businesses have shown resilience during this global pandemic. So, there we have it: British American Tobacco and Legal & General are two cheap, high-yielding FTSE 100 dividend hero stocks I’d buy today and hold forever. 

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James J. McCombie owns shares of British American Tobacco. 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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