When I retire, I plan to use my portfolio of dividend shares to provide a passive income. Today, I’m going to look at two FTSE 100 dividend stocks I think have the long-term quality needed to help fund my retirement.
A global growth trend
Most developed countries around the world are reporting ageing populations. More people are living longer, while birth rates are falling. At the same time, economic development in emerging markets is driving demand for improved healthcare and consumer goods.
These trends suggest to me that demand for modern healthcare is likely to increase for the foreseeable future. This is one reason why I’ve chosen FTSE 100 pharmaceutical group GlaxoSmithKline (LSE: GSK) for my first pick.
GSK missed out on the rally enjoyed by many pharma stocks last year. This was partly because sales of regular vaccines business suffered during lockdown, as people stayed away from doctors’ surgeries.
However, the group’s turnaround is making progress. Sales of new pharmaceuticals rose by 12% to £2.5bn during the third quarter, accounting for 30% of all revenue. Glaxo also remained very profitable, with an operating margin of 22%.
I expect this progress to continue. I’m also positive on the outlook for the consumer healthcare business, which owns brands such as Sensodyne and Nicorette. Boss Emma Walmsley plans to spin out this division into a new company over the next year or so. I think this will release value for shareholders.
Glaxo’s unloved status means this FTSE 100 dividend stock currently trades on just 12 times forecast earnings. The stock’s dividend hasn’t been cut for 15 years and now provides a yield of 5.7%. I think GSK shares look too cheap. I’d bid up the share price if the company’s 2020 results showed continued progress.
I already own a chunk of GSK stock, but I’m thinking about buying more.
Still growing after 185 years
Companies with long histories aren’t guaranteed to survive. But I believe a long, successful history is a good clue a business will continue to evolve and grow in the future. One long-lived company I rate very highly is pensions and insurance firm Legal & General Group (LSE: LGEN).
Legal & General wrote its first life assurance policy in 1836. In 2019, the company reported assets under management of £1,196bn and generated a pre-tax profit of £2.1bn. Shareholders received £1.1bn in dividends, all of which was covered by surplus cash.
In recent years, the firm’s strategy of buying out corporate pension schemes has supported continued growth. So-called Pension Risk Transfer sales totalled £11.4bn in 2019. This has enabled Legal & General to increase the dividend regularly while maintaining good levels of earnings cover.
Looking ahead, chief executive Nigel Wilson says that dividend payments are expected to total £5.6bn-£5.9bn between 2020 and 2024. That’s equivalent to around 36% of the current share price — not bad, in my view.
Investor worries about low interest rates and the outlook for the global economy have kept Legal & General’s share price pinned down over the last year. This has left the stock valued on just nine times forecast earnings, with a dividend yield of 6.6%. I’d like to buy this FTSE 100 dividend stock for my portfolio.