I’m a big fan of dividend stocks and their ability to contribute towards a passive income. I’m an even bigger fan of dividend stocks in defensive sectors that can deliver a steady payout throughout the economic cycle.
There are a number of high-quality defensive stocks that offer a solid dividend yield. I thought I’d take a look at two FTSE 100 stocks, Unilever (LSE: ULVR) and British American Tobacco (LSE: BATS), that could be worth a look for income investors like me.
Recent share price movement
Unilever has had a steady 2025 calendar year with the company’s share price edging 1.2% higher to £46.47, as I write on 29 August. A new management team is working to streamline the business and focus on its core brands.
It’s also been a strong year for British American Tobacco. Shares in the company are up 42% since the start of the year to £41.94 and trading just shy of its 52-week high, £44.01, as I write.
That’s despite regulatory headwinds, including restriction on the sale of vaping products in the UK, and ongoing environmental, social, and governance (ESG) concerns. The company is, however, an institution and well-renowned as a top dividend stock in the Footsie.
Valuation
Unilever currently trades on a price-to-earnings (P/E) ratio of about 24. That’s a premium valuation, compared to the Footsie average of around 13.5, but I think that’s reflective of its defensive sector and strength of the portfolio.
The market cap is £113bn and it has a 3.3% dividend yield. I think it’s a solid if unspectacular option to consider for income investors who are worried about an economic downturn.
By contrast, British American Tobacco trades at a trailing P/E ratio of around 30. That is well above the Footsie average. Of course, shareholders are still enjoying a 5.7% dividend yield for their troubles.
The company also boasts a market cap of £92bn and has consistently proven its ability to generate significant free cash flow.
Pros and cons
Unilever is a global behemoth and one of the world’s largest consumer goods conglomerates. I think its diverse portfolio and extensive product range catering to consumers’ essential needs leave it well-placed to generate earnings through the economic cycle.
That said, the stock certainly isn’t cheap, so investors are paying a premium. Inflation and cost pressures remain a threat to margins and its growth has lagged behind rivals like Procter & Gamble in recent years.
British American Tobacco offers a higher yield and steady cash flow but it’s not without controversy. While it is a proven leader in both traditional tobacco and next-gen vaping products, it is facing regulatory pressures on both sides of the equation.
My verdict
These two shares represent different approaches to passive income investing. Even so, they remain two of the most prominent income plays in the Footsie, and could be worth a closer look for long-term dividend investors.
