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Forget buy-to-let property! I’d buy these 2 bargain FTSE 100 dividend shares today

Peter Stephens
Piggy bank on floorboards

Tax changes and affordability issues could mean buy-to-let investments fail to live up to their past performance over the coming years.

As such, investors who are seeking a mix of income and capital growth may be better off purchasing a range of FTSE 100 stocks. They could offer greater diversity, as well as higher total return potential due, in part, to their low valuations.

With that in mind, here are two large-cap shares that could be worth buying today. They appear to offer wide margins of safety, as well as scope for strong dividend growth.

Taylor Wimpey

The recent trading update from FTSE 100 housebuilder Taylor Wimpey (LSE: TW) showed the company is experiencing resilient operating conditions. This may come as a surprise to some investors, since the political and economic outlook for the UK is highly unclear at the present time.

However, housebuilders have generally enjoyed robust demand over the last few years. Government policies such as Help to Buy are encouraging first-time buyers to get onto the property ladder, while continued low interest rates, due to inflation being under the Bank of England’s 2% target rate, may mean the housebuilding sector delivers further growth.

Taylor Wimpey currently has a dividend yield of around 11%. Its net cash position of approximately £500m means it can afford to pay out a large proportion of its net profit as a dividend without hurting its financial standing. This may lead to further dividend growth over the coming years, with the stock’s price-to-earnings (P/E) ratio of 8 suggesting it offers a wide margin of safety.

Imperial Brands

Another FTSE 100 stock that seems to be trading significantly below its intrinsic value is Imperial Brands (LSE: IMB). The tobacco company’s P/E ratio of 6 indicates investors have a downbeat outlook for the company following its recent downgrade to guidance.

Alongside this, the company’s CEO is being replaced. This could cause a period of uncertainty during what is a crucial time for the tobacco industry, with cigarette volumes falling and the popularity of reduced-risk products increasing.

It would perhaps be unsurprising for a new CEO to cut Imperial Brands’ dividend payments. After all, the company currently yields 12%, with investors seemingly having priced in a reduction in dividends. The company’s cash flow may be better used in developing its presence in next-generation product markets, which could lead to a faster rate of growth in its dividend over the long run.

As such, the near-term prospects for Imperial Brands could be uncertain. However, its low valuation and long-term growth potential suggest that now could be the right time to buy a slice of it. The stock appears to have the potential to outperform the FTSE 100, as well as buy-to-let properties in the coming years.

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Peter Stephens owns shares of Imperial Brands and Taylor Wimpey. The Motley Fool UK has recommended Imperial Brands. 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