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£5k to invest? 2 FTSE 100 dividend stocks I’d buy for my ISA and hold forever

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If you want to buy shares to hold forever, you need to find companies that sell things we’ll always need. I think the two FTSE 100 dividend stocks I’m looking at today fit the bill perfectly.

Both companies have performed well this year in difficult circumstances. I think they’re ideal stocks to buy today and tuck away in a Stocks and Shares ISA.

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#1: Strong performance from a family business

Companies where the founding family still has a large shareholding can be good long-term investments. The family owners often rely on dividend income to live. And they may have done so for several generations.

A good example is FTSE 100 dividend stock Associated British Foods (LSE: ABF). This group includes a mix of sugar, grocery and agricultural businesses, plus budget fashion retailer Primark.

It’s an unusual mix of businesses. I’m sure ABF would have been broken up by now if the firm wasn’t still controlled by its founding Weston family, who own 54% of the shares. However, keeping the group together has delivered impressive benefits during this year’s pandemic.

While profits at Primark — which doesn’t sell online — are expected to fall by around 65% this year, the group’s other businesses are expected to deliver “a very strong increase” in profits. Demand for staple foods surged during lockdown and as the owner of brands including Kingsmill, Twinings and Silver Spoon, ABF was well positioned to benefit.

Broker forecasts suggest ABF’s profits will fall from £896m to £631m this year, before bouncing back to £973m next year. That prices the stock on 15 times 2021 forecast earnings, with an expected dividend yield of 2.4%. I rate ABF as a long-term buy.

#2: This FTSE 100 newcomer could be a winner

The growth of discount retailer B&M European Value Retail (LSE: BME) has been impressive. Since 2015, annual sales have risen from £1,647m to £3,813m. City analysts expect further gains during the current year and have pencilled in a sales figure of £4,316m.

Of course, sales growth is nothing if profits don’t keep pace. Fortunately, they have done. B&M’s operating profit has risen from £133m in 2015 to £333m during the most recent financial year, which ended on 28 March. This strong growth has seen B&M’s share price rise by 26% over the last 12 months. The group was promoted into the FTSE 100 at the start of September, with a market-cap of nearly £4.8bn.

B&M’s mix of ambient food, household goods and fast-changing special offers means customers come back regularly and usually find something to buy. Prices are keen and the stores’ mid-size format means they fit well on out-of-town retail park locations. These have remained much more popular with shoppers during the pandemic than high streets and indoor shopping centres.

As a potential investment, I think B&M compares well to UK supermarkets, which are the obvious alternative. B&M’s operating margin has averaged 8.5% in recent years. Tesco — the most profitable UK supermarket — is achieving a figure of about 4% currently.

B&M shares are priced for continued growth on 16 times forecast earnings, with a dividend yield of 2.2%. Given the group’s track record, I think this valuation looks fair and rate B&M as a buy.

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Roland Head owns shares of B&M European Value. The Motley Fool UK has recommended Associated British Foods, B&M European Value, and Tesco. 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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