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2 FTSE 100 dividend growth stocks I’d buy today for a rising passive income

Rupert Hargreaves
Cupcake styled as a unicorn

The FTSE 100 is full of stocks with the potential to create a considerable amount of wealth for shareholders. However, some of these companies are much more attractive than others. Here are two FTSE 100 dividend stocks that stand out as some of the index’s top defensive plays.

Reckitt Benckiser Group

Reckitt Benckiser (LSE: RB) has run into some problems over the past few years, and investors have been quick to turn their backs on the business. In 2016, the market was willing to pay a price-to-earnings (P/E) ratio of 29 to own Reckitt’s shares. At the time of writing, the stock is trading at P/E of only 19.9.

Despite this performance, the outlook for the owner of consumer goods brands such as Durex, Mucinex, Scholl, Strepsils and Cillit Bang is bright.

While the company’s stock might have come under pressure since 2016, earnings have remained relatively constant. Meanwhile, the top line has only increased. Therefore, fundamentally, the business is stronger today than it was three years ago, contrary to what the market would have you believe.

At the same time, Reckitt’s dividend to investors has continued to increase. The stock currently supports a dividend yield of 2.6%. The payout is covered nearly twice by earnings per share, so there’s plenty of headroom for further growth as well. As such, now could be an excellent time to snap up shares in this consumer goods giant at a discount price.

Over the long term, demand for Reckitt’s products should only grow in line with the world’s population, as the need for cleaning products and consumer healthcare products is only going to grow. This should enable the company to maintain its dividend growth track record for many years to come. Over the past six years, the company has increased its dividend at an average rate of 5% per annum.

Unilever

Unilever (LSE: ULVR) has many similar qualities. Like Reckitt, it owns some of the world’s largest consumer goods brands, the demand for which should only increase over the long run.

The company’s brands are some of the most respected and recognised in the world, such as Ben & Jerry’s ice cream. That said, not all of the group’s brands are performing to expectations. As a result, management is planning to offload underperforming businesses, such as its tea division.

The company is reportedly seeking a buyer for this business, and if its last disposal is anything to go by, management will use the proceeds to buy-back shares and fund additional acquisitions. This should only bolster Unilever’s growth case.

The shares are a bit more expensive than Reckitt’s, but not by much. The stock is currently trading at P/E of 20. On top of this, shares in the consumer goods giant support a dividend yield of 3.2%.

The payout has increased at an average rate of 8% per annum for the past decade. With more deals on the horizon, it would appear this trend can continue.

The post 2 FTSE 100 dividend growth stocks I’d buy today for a rising passive income appeared first on The Motley Fool UK.

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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK owns shares of and 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.

Motley Fool UK 2020