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2 FTSE 100 dividend growth shares I’d buy in a Stocks and Shares ISA today

Peter Stephens
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The FTSE 100 may be facing a period of uncertainty, but this could present buying opportunities for long-term investors.

Certainly, there is the potential for a deterioration in the growth outlook for the world economy. The ongoing trade war between the US and China could increase in severity and limit the growth prospects for FTSE 100 companies.

But with periods of uncertainty often producing the most enticing buying opportunities, the risks to the world economy’s outlook may mean that buying these two shares today proves to be a sound move. They both offer long-term growth potential, as well as strategies that could enhance their competitive positions relative to sector peers.

Unilever

The outlook for FTSE 100 consumer goods company Unilever (LSE: ULVR) continues to be relatively impressive. In the current year, for example, it is forecast to post a rise in net profit of 10%, which suggests that its overall growth strategy is working well.

With the company having a diverse range of brands that operate in a variety of geographical areas, it potentially offers less risk than some of its index peers. Moreover, its focus on emerging markets means that its sales and profit growth rates could be catalysed by increasing wealth and wages across major economies such as China.

Unilever’s investment in digital channels could provide greater scope for direct-to-consumer sales. This may enhance its margins, as well as lead to greater loyalty among its customer base.

Although the stock currently trades on a price-to-earnings (P/E) ratio of 23, its consistent growth outlook means it may be worthy of a premium valuation relative to the wider index. As such, now could be the right time to buy it for the long term.

Legal & General

Another FTSE 100 stock that could offer high long-term total returns is Legal & General (LSE: LGEN). The wealth management company’s recent update showed that it is making progress with the delivery of its strategy. For example, asset disposals are set to allow it to focus on the most compelling growth opportunities on offer across areas such as retail retirement solutions.

Certainly, the company faces risks such as Brexit. This may mean that investors demand a wide margin of safety in the coming months. But, with Legal & General stating in its recent update that it is well-prepared for Brexit, it is forecast to post a rise in net profit of around 4% in the current year.

Since the stock trades on a P/E ratio of just 7, it seems to offer a wide margin of safety at the present time. Alongside a dividend yield of 8% that is covered 1.8 times by net profit, this suggests that the total return potential of the stock could prove to be high over the long run. Therefore, while uncertainty may remain high, now could be a worthwhile buying opportunity given the company’s strategy and low valuation.  

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Peter Stephens owns shares of Legal & General Group and 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 2019