The best FTSE 100 dividend stocks for me are not always the ones with the highest yields today. To my mind, they are often stocks that pay dividends for a long time and can grow those dividends as well. As a result, the yield on my initial investments in these stocks can keep rising over time.
Interestingly, growing dividends typically imply that the company’s profits are healthy, which often correlates with higher share prices. The higher share prices may keep the yields looking moderate at any particular point in time. But over time, the yields on my investments can look pretty good.
A highly rewarding FTSE 100 stock
Consider the example of the FTSE 100 construction company Ashtead. According to data compiled by AJ Bell, if I had bought the stock in September 2011, my dividend yield would now be almost 30% today. In contrast my dividend yield would have been 2.5% in 2011, which is below 3.8%, which was the average FTSE 100 dividend level at that time. But because of the dividend growth over time and despite the share price increase seen in the stock, the yield today looks great.
In fact, the company’s share price has increased by an entire 45 times since then. When seen in this context, this would clearly be a winning stock to have had in my portfolio, both from a growth and an income perspective.
Double-digit dividend yield over time
Another example is the FTSE 100 asset management company Intermediate Capital Group. It would have yielded me 24.6% returns on my investment if made in 2011. And my capital would have also grown some 10 times in the decade since. In this case, the signs were far clearer in 2011 that Intermediate Capital Group was a rewarding dividend stock. Even then, its dividend yield was a huge 8.3%, much above the FTSE 100 average then.
Similarly, the investment platform Hargreaves Lansdown would have been another stock to buy then. Much like Ashtead, its dividend yield too was low at 2.8%. That same investment in 2011 would have yielded me almost 11% returns. And it too has shown a share price increase of over four times during the past decade.
My takeaway
I think all three stocks are good ones for me to buy even today and are on my investing wish list now. It is entirely likely, of course, that their returns will not be quite the same as they have been over the past decade. There is a host of reasons for this, including the continued pandemic, weak recovery, and as a result, ongoing stock market uncertainty.
But there are also reasons to be hopeful. In October, the FTSE 100 index has been strong, booster shots for vaccines will help prevent further spread of the virus, and the recovery might be uneven but it is still ongoing.