My investment portfolio is built on a foundation of stable dividend stocks. I use passive income to navigate the volatility in the market. Regular dividend payouts keep the money rolling in even if the market performance of my investments is poor. And the British market has some excellent dividend options for me to pick from. Here are the two UK FTSE 100 dividend stocks that I’d buy today for the long term.
Bargain dividend stock
British American Tobacco (LSE:BATS) is a multinational tobacco company that offers a stunning 8.25% dividend yield at its current share price of 2,610p at the time of writing today. BATS is trading at a forward profit-to-earnings ratio of 9.6 times, making it an undervalued stock.
But, this is an investment I am considering just for its sizeable dividends. This FTSE 100 share has been falling steadily since mid-2017 when it hit its all-time high price of 5,560p. BATS shares are down 8% in the last year and I do not expect a huge turnaround given falling tobacco sales in the UK. However, a further drop in share price means the yield will increase, given that revenue doesn’t take a hit.
And this is where the tobacco company proves valuable. BATS is making the switch to a broader range of products. The ‘new category’ segment, which includes vapes, e-cigarettes, and tobacco pouches, saw a revenue jump of 50% to £942m in the first half (H1) of 2021, compared to H1 2020.
BATS is on target to record £5bn in revenue from the new category products by 2025. If this transition is successful, the company could see good revenue growth over the next few years. This is a positive for future dividends, which is why I am considering a £1,000 investment in BATS shares today.
10.9% yield with growth potential?
The next FTSE 100 dividend stock on my list is Rio Tinto (LSE:RIO). I think it is the best pick right now for my portfolio as it operates in a thriving sector and is showing signs of steady growth.
Unlike BATS, Rio’s future and growth potential excites me. Its investment in the Jadar project in Sweden and partnership with InoBat (a lithium battery R&D company) is a sign that Rio will be a big player in the EV (electronic vehicle) revolution. I wrote about the importance of lithium to the EV industry and Rio is well poised to capitalise.
And, at its current share price of 4,500p, it is trading at a forward price-to-earnings (P/E) ratio of 5.2 times. Factoring in the mammoth 10.9% dividend yield, Rio shares look like an incredible bargain pick for my portfolio right now.
There have been some concerns surrounding the environmental impact of the Rio project in Sweden. Also, the company has a history of labour rights issues, notably in its uranium mines in Namibia. But I think the company has moved on from this and if the environmental issues are addressed, the FTSE 100 miner could reap tremendous rewards from lithium mining and processing.
When I look at the mouth-watering yields and growth potential, I am definitely considering an investment in Rio shares today. I think it could be a strong growth option with a huge yield for my portfolio over the next decade.