As an investor focused on long-term investments and returns, dividend payouts are attractive to me because they bring in periodic passive income that boosts my earnings. While choosing dividend stocks, I look at the company’s historic dividend per share yield and net revenue as primary indicators.
With that in mind, here are two FTSE 100 dividend stocks I am looking at for my investment portfolio.
Steady supermarket giant
Tesco (LSE:TSCO) is UK’s largest supermarket chain with a whopping 27% percent market share. It offers a 4% dividend yield backed by consistently healthy cash flow.
The recent sale of its Asian operations for £8bn has juiced up Tesco’s cash reserves and the company has renewed its focus on the UK and European markets. The board expects profits in 2021 to rise to 2019 levels of £1.9bn. This potential 20% growth is a very encouraging sign for me when looking at future dividend yields.
Tesco adapted well to the increase in online grocery retail during the pandemic. Online sales figures rose from 9% of total sales to 16% last year and have remained consistently high since.
This is a crucial reason why Tesco is on top of my dividend stocks to buy list. There are no immediate areas of concern for me that need fixing. A thriving online marketplace and 4,008 stores in the UK and the Republic of Ireland tell me that there are no immediate cash-draining expansion plans.
Even though the annual dividend for 2021 went down 8.4%, its interim dividend payout went up 20% from 2019. Its share price has been rising steadily in the past month, which to me is another positive sign.
There are potential concerns for Tesco. The supermarket sector is very defensive with increasingly thin margins of profit. Also, the recent surge in share price was a direct result of noise surrounding a Morrisons takeover deal which boosted grocer shares nationwide. This could come crashing down in the near future, stalling gains.
But I still remain positive about Tesco as a robust dividend stock backed by great sales figures and large cash reserves.
High yield finance stock
FTSE 100 member and financial service provider M&G (LSE: MNG) offers an impressive 8% dividend yield on its current share price of 214p.
The 2020 annual dividend payout was 18.23p per share, 15.6% higher than 2019. This included a 6p interim dividend and a 12.23p second interim.
After separating from Prudential in 2019, M&G has grown to become a big name in UK’s asset management field. With a large customer base of 5m retail and 800 institutional clients, the company valued at £6.4bn looks set for a strong performance this year.
But, the bounce-back period after the pandemic could prove turbulent. If the economy worsens, the investment sector could be affected. It also faces competition from large global organizations like Barclays and UBS. The historic data for the company is limited, which is a negative for me as well.
But, the 8% yield and large consumer base put M&G on my buy list. If the company continues its strong run, investors could be rewarded handsomely.