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Dividend stocks: 3 I’d buy from the FTSE 100 index

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BAE Systems
Image source: BAE Systems

Despite last year’s rout of dividends, there were still plenty of generous payers among the UK’s blue-chip stocks. Furthermore, as well as coming through 2020 intact, many are forecast to continue rewarding shareholders this year and beyond.

With this in mind, here are three dividend stocks from the FTSE 100 index I’d be happy to buy today.

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Defence giant

BAE Systems (LSE: BA) is a dividend stock that has never cut its payout since the company was formed in 1999. Indeed, the board has increased the dividend every year bar one (2003) when it maintained it at the prior-year level.

We could have a repeat of a maintained dividend when BAE issues its 2020 results on 25 February. The business has been resilient but not entirely immune to the impact of Covid-19. Management expects to report a small dip in earnings.

I reckon a price-to-earnings (P/E) ratio of 10.9 and yield of 4.9% make this an attractively valued dividend stock. Particularly as earnings and dividends are forecast to resume growth in 2021.

But looking to the longer term, if we were to see lower defence spending by BAE’s major customers (unlikely, in my view), it could have a material adverse effect on the group’s financial performance.

FTSE 100 dividend stock #2

Polymetal International (LSE: POLY) is a global top-10 gold and silver producer. It owns nine producing mines in Russia and Kazakhstan and has a strong pipeline of future growth projects.

The company will release its 2020 results on 3 March. Based on City analysts’ earnings and dividend forecasts, the stock trades on a P/E of 9.8 and carries a 5.7% yield. This looks very generous to me.

World money printing on an unprecedented scale is debasing paper currencies and inflating global debt to mind-boggling levels. I think this will support demand for ‘store-of-value’ gold for years to come.

If so, I’d expect Polymetal to maintain its status as a strong dividend stock. But if I’m wrong, and the gold price sinks, the dividend could come under pressure.

Unfazed

Unilever (LSE: ULVR) was the biggest faller in the FTSE 100 index yesterday. This followed the release of its 2020 results. The household brands powerhouse delivered underlying growth at constant exchange rates, and increased its dividend. However, costs were higher and margins lower than the market was expecting.

A softer-than-anticipated performance in one quarter doesn’t faze me. I think the market is giving me an opportunity to buy shares — in what I consider one of the top Footsie dividend stocks — at a higher yield than I’d have got the previous day.

Unilever’s running yield stands at 3.6%. Meanwhile, I reckon a P/E of 18.6 on the 2020 underlying earnings isn’t excessive for this high-quality consumer goods business.

Having said that, the group’s success rests on the continued strength of its brands. It’s critical it responds effectively to consumer tastes, preferences and behaviours that are changing more rapidly than ever before. A failure to do so could adversely impact its financial performance and dividend.

Dividend stocks’ risk and reward

The aggregate yield of the three dividend stocks I’ve discussed is 4.7%. This is far higher than the interest rate I can get on a UK savings account. However, if any or all of the three companies cancelled, suspended, or cut their payouts, my aggregate yield would fall. Furthermore, share prices can fall too, meaning I could get back less than I invested.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. 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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