UK markets closed
  • NIKKEI 225

    23,516.59
    +42.29 (+0.18%)
     
  • HANG SENG

    24,918.78
    +132.68 (+0.54%)
     
  • CRUDE OIL

    39.05
    -0.80 (-2.01%)
     
  • GOLD FUTURES

    1,897.70
    -7.50 (-0.39%)
     
  • DOW

    28,335.57
    -28.13 (-0.10%)
     
  • BTC-GBP

    9,989.62
    +11.07 (+0.11%)
     
  • CMC Crypto 200

    260.05
    -1.40 (-0.54%)
     
  • ^IXIC

    11,548.28
    +42.28 (+0.37%)
     
  • ^FTAS

    3,310.38
    +41.84 (+1.28%)
     

3 well-covered FTSE 100 dividend stocks that I’d buy and hold forever

Harvey Jones
·3-min read
British pound coins in birds' nest
British pound coins in birds' nest

The pandemic has been tough on dividend stocks. Almost half of FTSE 100 companies have scrapped or suspended theirs. Yet plenty of companies continue to reward loyal shareholders by paying generous levels of income.

I have picked out three FTSE 100 dividend stocks whose payouts are covered at least twice by earnings. That is a sign they may be sustainable.

Consumer goods group Reckitt Benckiser Group (LSE: RB) has lived up to its reputation for being a defensive stock. After falling in the initial sell off, its share price bounced back strongly. It now trades an impressive 20% higher than a year ago when we’d never heard of Covid-19.

Three dividend income stocks I’d buy

It’s actually benefited, as this has increased demand for cleaning and pain relief products, boosting its health and hygiene operations. Dettol was a particularly big seller. First-half pre-tax profit rose £100m to £1.4bn, up 7.7%, with net revenue up 10.8% to £6.9bn. Other areas floundered, as the recently-acquired baby formula business stubbornly refuses to grow.

Reckitt Benckiser doesn’t offer a massive yield, just 1.9%. However, management has been progressive, so you can expect growth in future. Cover currently stands at exactly 2.0, which is comforting. It’s one of my favourite income stocks, and not just for the dividends.

Data and credit-checking specialist Experian (LSE: EXPN) is another FTSE 100 income stock with a solid dividend, covered 2.1 times by earnings. It’s also one of the most spectacularly successful growth stocks on the index, up 176% over five years. The pandemic has done little to slow its progress. Experian is also up 20% measured over the last year.

Experian saw trading grow strongly in July and August. As a result, it has hiked its second-quarter revenue expectations to between 3% and 5%. Its US mortgage arm has done particularly well, as the business shows its “naturally resilient” qualities.

As FTSE 100 dividend stocks go, the yield is relatively low at 1.21%. But that’s partly down to its runaway share price success. Experian is now valued at almost 40 times earnings as a result. This is expensive, but also shows how highly investors rate it. You might prefer to buy if we get another stock market crash, when it may be cheaper for a while.

Aim to hold for the long term

My last well-covered FTSE 100 dividend stock is a long-term favourite of mine, distribution and outsourcing group Bunzl (LSE: BNZL). Again, the yield is relatively low at 2.04%, but cover is super strong at 2.6 times earnings.

After the usual March dip, Bunzl’s comeback has been staggering, with the stock soaring more than 50% over six months. It did scrap its dividend in April, but quickly brought it back as demand for personal protective equipment boosted profits. This should offer some ballast if slowing economic growth hits demand elsewhere in the business.

I reckon these three well-covered FTSE 100 dividend stocks merit a closer look. The businesses have solid long-term prospects and I’d aim to buy and hold them for years after the pandemic has passed.

The post 3 well-covered FTSE 100 dividend stocks that I’d buy and hold forever appeared first on The Motley Fool UK.

More reading

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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