It may seem strange to write in praise of FTSE 100 dividend stocks at a time when the price of gold and Bitcoin are going through the roof. Yet that’s what I’m going to do. I still believe investing in the UK’s top blue-chips is a better way of building your wealth over the long-term, than chasing the gold and Bitcoin price higher.
If you are sceptical, I understand. The gold price has just exploded past $2,000 an ounce for the first time in history. Crypto-currency Bitcoin is also flying, trading at $11,756 as I write this.
Investors are racing into safe havens amid fears that a second wave of Covid-19 could trigger another stock market crash. So why am I bigging up FTSE 100 dividend stocks? I think gold and Bitcoin both look dangerously overpriced, and vulnerable to a fall.
I’d consider buying these two shares today
Neither asset class pays any income either, whereas many FTSE 100 dividend stocks offer massive yields. For example, asset manager Standard Life Aberdeen (LSE: SLA) yields an incredible 8.03%.
While many top companies have suspended dividends during the pandemic, CEO Keith Skeoch has stood by his shareholders. On Friday, the group maintained its 7.3p interim payout, despite announcing a 30% drop in first-half profits to £195m, as customer outflows rose during the crisis.
Skeoch praised the group’s “resilient performance” in exceptional circumstances, and said its strong balance sheet allows it to invest in the business and maintain its interim dividend. A word of warning: Skeoch is leaving shortly, and incoming CEO Stephen Bird could cut the dividend to strengthen the group’s balance sheet.
No dividend is entirely safe. However, even if Bird slashed the Standard Life Aberdeen payout in half, it would still yield a generous 4%. That’s more than gold and Bitcoin ever will.
Another FTSE 100 dividend stock to consider
Telecoms giant Vodafone Group (LSE: VOD) halved its shareholder payout last year, a move I welcomed at the time because the yield was into double-digits. Today it yields a healthy 6.93%. Having got its dividend cut out of the way, management has stood firm this year. Anticipated free cash flow of at least €5bn in the current year should help make it sustainable.
Vodafone’s revenues have fallen during the crisis as the travel lockdown hits income from roaming and visitors. Total Q1 revenue fell 1.4% to £10.5bn, which is modest compared to the damage most FTSE 100 dividend stocks have incurred.
Vodafone’s debt pile is pretty hefty at €42bn in 2020, but the planned IPO of its mobile tower business Vantage Towers in 2021 could help shrink that. Dividend cover is just 0.8, but an anticipated 28% rise in earnings per share in the year to 31 March 2021, and 42% in 2022, should improve matters.
With both these FTSE 100 dividend stocks, I would aim to buy and hold for the long term, to give them time to prove their mettle after the pandemic. I would buy either ahead of gold or Bitcoin.