Retirement savings: I’d buy these 2 FTSE 100 dividend growth stocks today

These two FTSE 100 (INDEXFTSE:UKX) income shares could deliver impressive long-term returns in my opinion.

Peter Stephens

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 14 July, 2019 12:16 pm BST

| More on: DGENXT

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

While the FTSE 100 may not yet have recovered to reach a new record high, the index appears to offer a number of investment opportunities for the long term.

Certainly, in the short run it may experience a somewhat challenging period that includes a significant amount of volatility. After all, a global trade war may be on the horizon.

However, with a variety of large-cap stocks appearing to offer strong growth prospects and improving income outlooks, now could be a good time to invest for the long run.

With that in mind, here are two enticing dividend growth shares that could boost your retirement savings prospects.

Diageo

While Diageo (LSE: DGE) may have a dividend yield of just 2% at the present time, the alcoholic beverages company could deliver strong growth in shareholder payouts over the long run.

A key reason for this is its exposure to the emerging economies of the world. The company is expected to experience significant growth in demand for its products over the coming years, with rising wealth levels likely to mean that its premium spirits brands become more affordable. This could increase the size of its customer base and catalyse its growth rate.

With the world economy facing an uncertain period, Diageo may offer a degree of defensive appeal. It has a solid track record of profit growth in a variety of operating conditions. Consumer demand for alcoholic beverages may remain more robust than it is across other consumer goods industries, which could lead to outperformance of the FTSE 100 by the stock. As such, now could prove to be an opportune moment to buy a slice of the business.

FTSE 100 retailer Next (LSE: NXT) faces a dual threat from weak operating conditions, as well as an increasingly digital-focused retail environment. As such, it may lack the resilience of other income shares over the short run.

However, with the company having a successful track record of performing well relative to its peers in challenging trading conditions, it could be a surprisingly robust retail stock to own as the Brexit process moves ahead. Furthermore, its history has shown it is highly capable of adapting to a changing retail environment. It has a strong chance of success on the back of the growing importance of e-commerce and already has a powerful track record in this area.

Since Next is expected to yield 3% in the current year, there are many FTSE 100 shares that offer higher income returns. However, with its dividends being covered 2.7 times by profit, they seem to be highly affordable. In fact, there is scope for the company to pay out a higher proportion of profit as a dividend without hurting its financial position.

With its bottom line due to rise by 4% in the current year, its prospects may be more positive than those of the wider retail sector. Over time, this may lead to an improving income outlook for the company’s investors.