When looking for FTSE 100 dividend stocks to buy, I want to try and ensure that I’ll continue to receive income for years to come. I call this getting sustainable payouts. After all, I don’t want to spend unnecessary time having to buy and sell stocks because of dividend cuts. I want to try and make my dividend investing strategy as passive as possible. Here are two stocks that I think currently fit the bill.
A resilient FTSE 100 dividend stock
First up is Severn Trent (LSE:SVT). The UK-based utilities company provides water and waste services to millions. It has some operations abroad as well. Over the past year the share price is only up around 3%, but the main focus for me is the fact that it’s a dividend stock.Â
The dividend yield is currently above the FTSE 100 average at 4.1%. More than this, due to the performance of the company, I think it’s sustainable going forward.
Half-year results through to the end of September 2020 showed good resilience despite the pandemic. Revenue was down 2.5%, largely due to the decrease in metered revenue. Even though profit took more of a hit, the interim dividend per share of 40.63p was still confirmed.
This is because the company “recognises the critical role that dividends play in providing necessary income for pensioners and savers”. It has good liquidity, and £890m of unutilized facilities that it could call on, making the outlook for the company robust in my opinion.
A risk could be that the bad debt provisions set aside could spiral higher and be a drag on the company. An additional £8.2m of bad debt charges was recorded in the half-year report. This is something I’d want to keep my eye on with this FTSE 100 dividend stock.
A well-run investment manager
The second FTSE 100 dividend stock that I think is sustainable for the future is Schroders (LSE:SDR). The dividend yield currently offered is 3.23%. This might just beat the average in the index, but I think the fact that the dividend is robust makes up for this.
Schroders is a large investment manager, and so has to meet capital requirements from the regulators. As an investor, I see this as a positive, almost as if the business financials are being overseen by a third party.
The company primarily makes money based on the amount of assets held under management. In the 2020 financial year, assets under management increased 15% to reach a record high of £574.4bn. But higher operating costs meant that profit after tax was broadly the same as the previous year.
Good profits and good liquidity make me think that a dividend will continue to be paid to shareholders going forward. Over the past 10 years, the dividend yield for this FTSE 100 stock has averaged around the 3% mark.
One potential risk I see is the expansion of services in China that is being pushed. Given the nature of the Chinese system, I think Schroders needs to be careful here, as many companies that have tried to crack the Chinese market have come away licking their wounds.