A stock market crash is a great opportunity for long-term buy-and-hold investors. It allows them to pick up top FTSE 100 shares when markets are down then sit back and wait for them to recover.
Right now, I would target FTSE 100 companies with a proven ability to increase their dividend, year after year. If they have been able to maintain payouts during the stock market crash, even better. These three UK shares have increased their dividends for the last 10 consecutive years, according to research from AJ Bell. That suggests we can expect plenty of growth in future.
Spirits maker Diageo (LSE: DGE) is never the biggest yielding stock on the FTSE 100. Right now, it yields ‘just’ 2.74%. That doesn’t worry me, though. The attraction with Diageo is that management has a progressive attitude to shareholder payouts. One reason the yield looks so low is that the share price was rising so rapidly (before the stock market crash) that it struggled to keep up.
Stock market crash targets
Management did hold the dividend earlier this month, but these are exceptional circumstances. Diageo’s pre-tax profit dropped by half in 2020, so I think it is quite impressive that management paid a dividend at all.
The Diageo share price inevitably fell in the stock market crash. While people have been drinking more at home during the lockdown, they have drunk an awful lot less in bars, restaurants and pubs. However, the fact that the dividend has kept flowing suggests to me that Diageo has the resilience to resume payouts when the world edges back to normal. Markets believe it will raise its dividend by a decent 4.4% in 2021. That would be more than enough to keep me happy.
Now looks like a good time to invest in sensible defensive stocks such as utilities, and I like the look of water company Pennon Group. Right now, it yields a healthy 4.31%. That looks highly attractive with the base rate at just 0.1%.
I like these 3 FTSE 100 dividend heroes
Although Pennon reported a 4.1% drop in profit before tax in June, partly due to a provision for non-payment of bills during the pandemic, it still upped its total dividend by 6.6%. Markets expect another 4.4% hike next year. The main reason investors buy utilities is for dividends, and I’m sure management will do all it can to maintain payouts. It should remain a relatively reliable source of income, even if we get a second stock market crash.
If you fancy an even higher income, I would check out insurer Legal & General Group. This is another FTSE 100 dividend hero, having hiked its payout for 10 consecutive years. While rival Aviva meekly pulled its dividend during the stock market crash, L&G managements stuck by its payout. Incredibly, markets anticipate an increase of 5.4% next year.
As well as a massive income, the stock market crash has left Legal & General stock trading at a bargain 7.3 times earnings.
I reckon now is a great time to buy all three stocks, with the aim of holding them for years and years, and watching those dividends grow.
The post Stock market crash: 3 FTSE 100 dividend shares I’d buy and hold for the long term appeared first on The Motley Fool UK.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Pennon Group. 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