3 FTSE 100 dividend stocks I’d use to boost the State Pension for the next 20 years

At just £168.60 a week, the new State Pension is unlikely to give those eligible for it (men born on or after 6 April 1951, and woman born on or after 6 April 1953) the most luxurious lifestyle on retirement. That’s why many may choose (or will choose) to stick with investing well into their golden years, focusing on stocks that should pay dividends for a long time to come. 

But picking such stocks isn’t easy, not helped by the fact that some of the biggest yielding shares in the market — and therefore highly attractive to those looking to generate an income — are also the most troubled. 

For me, the emphasis should instead be on the quality of the company and management’s willingness to continue growing dividends. Here are three examples I think can be relied on to keep throwing off cash for the next couple of decades.

For the long haul

First up would be spirit king Diageo (LSE: DGE). That might seem strange given that a statistical report from the NHS last year revealed that ‘only’ 58% of survey respondents reported drinking alcohol in the previous week in 2017, down from 65% in 2007.

But while we may be drinking less these days, we’re also paying for premium brands when we do. That’s why I find Diageo’s portfolio — featuring Johnnie Walker, Tanqueray and Ketel One — so appealing.

Diageo isn’t a cheap stock to buy at the best of times but this is particularly the case right now. Having climbed 17% in value since the beginning of 2019, it now trades on a frothy 25 times earnings. Nevertheless, you might argue price isn’t necessarily the most important thing for investors who plan on holding shares for many years (which, for the record, we at the Fool think is a good idea).

Another stock I think has a solid long-term future is luxury brand Burberry (LSE: BRBY) which, incidentally, reports full-year numbers next week. The £8bn-cap has been around since 1856. As such, I can’t see tastes changing to such an extent that it’s going out of business in the next 20 years.

Again, like Diageo, Burberry isn’t cheap to acquire. It’s currently trading on 23 times forward earnings. That’s clearly high relative to the FTSE 100 index but also when compared to its average valuation over the last five years of 18.5. 

Nevertheless, Burberry has a lot of the things I look for in a company. High returns on capital, a lovely net cash position (hardly any debt) and a steadily rising dividend. A 2.3% yield isn’t huge but it looks secure for now. 

A final pick would be another giant of the stock market: Marmite owner Unilever (LSE: ULVR). Bumper operating margins suggest the company’s current forward price-to-earnings (P/E) ratio of 21, reducing to 19 in 2020 based on growth expectations and the current share price, can be justified. 

What’s more, Unilever keeps increasing its cash payouts to shareholders. A total dividend of 146p per share in the current financial year would represent a rise of 12% on that returned in 2018 and equate to a yield of almost 3.2%.

That may be less than the income you’d receive from holding a FTSE 100 exchange-traded fund but you’d also get roughly half the returns on capital that Unilever is able to generate if you went for the former.