FTSE 100 dividend stocks play a huge part in how I plan my portfolio for a stable second income. And I think it is vital to identify companies with a shareholder-first approach. For this, I look at historic yield and how a company uses excess cash when I’m deciding if a dividend stock is worth investing in.
With the FTSE 100 index reaching new highs, the market looks very attractive right now. I think the index offers some excellent options for my income portfolio. Here are three UK dividend stocks I would invest in today and hold for a very long time.
Digging deep into dividends
Mining company Rio Tinto (LSE:RIO) offers an incredible 10.4% dividend yield at its current share price of 4,760p. This huge payout is a result of a special one-time dividend in 2021. The good news is, the company amassed a huge cash reserve of US$13.6bn last year, according to the first-half (H1) 2021 report. And current H1 net cash figures stand at US$3.1bn even after the US$6.4bn shareholder payout. Given the sizeable excess, analysts believe that the company could maintain a 9.5% yield next year as well.
Rio owns huge lithium reserves, making it a big player in the global electronic vehicle (EV) revolution. Lithium is an integral component the rechargeable batteries used in EVs. This is why I think Rio’s revenue could grow significantly over the next decade if this EV push continues.
But there are some concerns surrounding Rio. Its Jadar lithium mine in Serbia was subject to scrutiny after protests highlighted the possible environmental impact. Also, fluctuating commodity prices make it hard to establish stable revenue figures. But, it is hard for me to overlook the potential of the sector and mammoth dividends which is why Rio is on my FTSE 100 dividend stock watchlist.
History of dividend growth
British American Tobacco (LSE: BATS) and Legal & General (LSE:LGEN) are my other dividend stock picks. Both companies offer strong dividends but more importantly have a history of increasing dividends year on year.
Tobacco giant BATS offers an attractive 8.5% dividend yield and two decades of steady dividend increases. Despite its poor market performance over the last year and global decrease in tobacco sales, it earns a spot on my list. Just the yield alone makes BATS an exciting option for steady passive income. I would definitely consider a £1,000 investment in BATS shares today to grow my income portfolio.
UK insurer LGEN offers a robust 6.2% dividend yield and I think the stock is an attractive growth option for my portfolio as well. It is currently trading at 287p at a profit-to-earnings (P/E) ratio of 7.5 times. This points to a slightly undervalued stock with room for growth. Also, its yield has increased steadily for the past decade. Analysts are predicting a dividend of over 18p per share in FY21, which is a 4.5% increase from last year.
With the whispers of another Covid outbreak, the financial sector does not look too inviting to me. The insurer could take a hit if we are forced indoors. But I think the 6.5% yield is a decent security blanket even in an unstable economy, which is why I’m putting LGEN shares on my watchlist of best FTSE 100 dividend stocks.
Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco. 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.
This post was originally published on Motley Fool
